EUR/USD, USD/CHF probe pivotal levels, implied volatility spikes

Traders seeking Fed cuts have been gifted with soft figures form the ISM manufacturing report, GDPNow and ADP employment growth. Whilst ISM services was a decent enough report, greater emphasis is being placed on bad over good. And that has set the tone for today’s nonfarm payroll report: Should it disappoint slightly to the downside, the USD seems poised to take another leg lower and boost appetite for risk. If data comes in too soft then it could throw a spanner in the works for Wall Street indices around their record highs or pull back sharply should jobs data come in hot.

Yet consensus estimates do not pencil this in to be a particularly ground breaking report with unemployment expected to remain at 3.9%, 182k jobs to be added (from 175k prior) and average hourly earnings to pick up to 0.3% m/m from prior. However, I suspect an unemployment rate at 4% or higher and job growth a `60k or lower might be pounced upon by USD bears, especially if met with softer earnings.

EUR/USD technical analysis:

Looking across FX majors, I am wondering if the US dollar selloff has got ahead of itself which could make it vulnerable to a bout of strength as we approach the weekend, unless NFP data truly delivers what bears want to see. A bearish divergence has formed on the EUR/USD daily chart, and the pair has clearly struggled to properly break above 1.09.

The 1-hour chart shows a bullish yet tired trend, so we may need to see a combo of soft job growth, earnings and higher unemployment before assuming a solid break higher. Still, dips are being bought and high volumes have accompanied them. He upper 1-day implied volatility band sits around 1.0930, and there is a strong cluster of resistance around 1.0950 which includes the monthly R2 pivot and historical high.

Should momentum turn lower, the lows around 1.0860 look like the first major support level for nears to target.

USD/CHF technical analysis:

The decline on USD/CHF has been the cleanest among USD pairs since the SNB warned of a potential intervention in response to a weaker Swiss franc. Yet support has been found at the February high and 38.2% Fibonacci level, and prices are currently meandering around 0.89. This is clearly a pivotal level for markets today, with a break beneath it opening up a move towards 0.8800 near the high-volume node and lower 1-week implied volatility band.

However, a bullish divergence has formed on the 1-hour RSI, and should employment data come in hot then we could see USD/CHF rise sharply higher.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge