US Labour Data In Focus

Ahead of the upcoming September FOMC meeting, there is a great deal of focus on the latest US labour market data due today. With the Dollar trading at highs ahead of the release there is clear two way risk into this event; weak data and late USD longs will get washed out as players cover their USD long positions and speculators rush to sell on the back of the release; strong data and a larger hike in September will be all but confirmed, sending USD higher. The market is looking for a much lower 295k on the NFP this month, down from the 528k prior. Given the much lower threshold this time, the risks of disappointment are much lower.

There has been plenty of talk recently about the USD rally being overstretched and vulnerable to a deep correction. While that’s partly true, it’s worth noting that current market pricing for a larger hike in September is still only around 70%. This means that a larger hike has not been fully priced in and so, should today’s data surprise to the upside, there is plenty of room for a fresh leg higher in USD as the market moves to fully price in a larger hike. Similarly, given the hawkish narrative from the Fed ahead of this event, it would likely take a disastrous result to swing market pricing back in favour of a smaller .5% hike. With that in mind, upside USD plays look to be the better option today.

Where to Trade US NFP?

NASDAQ

If USD moves higher on the back of today’s data, the NASDAQ is a solid candidate for a further push lower. Price is currently sitting on support at the 12220.22 level, a break lower here and bears can target 11540.72 initially and 10999.03 thereafter.