USD bulls defend 100, NFP and ISMs in focus: The Week Ahead

US data takes the limelight again, with the ISM services and manufacturing report alongside NFP standing out on the calendar. I doubt the Vice President candidate debate will amount to much for markets, but it may be one to earmark for entertainment purposes. Beyond that, final PMIs are nice to see but not likely to be a huge driver. And the same can be said for China’s PMIs as they won’t capture the recently announced stimulus.

The Week Ahead: Calendar

ISM manufacturing and services

Both of the August ISM reports surprised to the upside, although it is clearly the services sector which is actually expanding. New orders also expended at a faster pace for services, and if this trend continues it could excite USD bulls. However, while services surprised to the upside its rate of expansion has been trending lower for some time. And I fully expected USD bears to pounce upon any slight cracks on the services report, particularly if the employment component softens ahead of Friday’s NFP report.

Nonfarm payrolls report (Friday)

August’s payrolls figures threw a spanner in the works for those calling a US recession. Unemployment fell to 4.2% and 140k jobs were added. Moreover, earnings rose at the fastest pace in four months at 0.4% m/m, and picked up to 3.8% y/y. When placed alongside stronger-than-expected manufacturing and services ISMs, CPI and PPI, I still suspect the Fed will move in 25bp increments going forwards.

Especially if we see NFP figures remain firm in next week’s report. Note that the 140k jobs added was above its 3-month average, so any figure above 141k can be seen as a strengthening jobs market. As could an unemployment number at 4.1% or less. If such figures arrive, an arguably oversold USD could provide a decent bounce.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

USD index technical analysis:

Over the past weeks the USD index has fallen over 5%, mostly in a slight line. Yet bearish momentum has been waning since the August low, and prices have failed to break beneath it despite a high-volumed bearish week last week. The market is also on track to form a inside week and doji should it close around current prices, which could play into the case for a pending countertrend move.

I am getting similar vibes from the daily chart. The 100 handle, 2024 open and historical weekly VPOC (volume point of control) also reside around the August low, which simply reinforces it as a support level. And when you consider that price held above support despite a 50bp Fed cut, I continue to suspect a decent bounce is on the cards as a robust US economy seems more likely to pump out better-than-expected numbers next week than not.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge