Volatility ahead as markets settle in for Non-farm Payrolls


  • Volatility surrounding China has been significant in recent weeks. Although markets seem to be reasonably settled on Tuesday, exactly how long this will last remains to be seen. The next bit of key China data comes with the trade balance next Tuesday, before inflation next Thursday. If the reason to recent data releases is anything to go by, this is could be the calm before the next storm.


  • Market volatility indicators are still fairly elevated, with the S&P VIX volatility index currently over 30 (although this is likely to be reduced today), the concern that fund managers have is still clearly driving demand for portfolio protection (i.e. buying S&P 500 put options). This mood is reflected in the volatility indices for both DAX and FTSE 100 alike.
  • The other big issue of the recent trading outlook is the potential for an FOMC rate hike. I am of the opinion that the market is steadily scaling back expectations of the September rate hike still. Looking at the US Trade Weighted Dollar the dollar is now in a medium term sideways trading band, with a slight bearish bias. This reflects the slightly positive bias on EUR/USD and the corrective outlook now on Dollar/Yen. Trading below the 96.3 pivot on the Trade Weighted Dollar (=USD) with deteriorating momentum suggests there could be a test of the 93.2 key support which has been a floor throughout 2015 – This equates to a move on EUR/USD back towards $1.1460.
  • Volatility on the oil price has been incredible and until this settles (and starts to recover) then the market volatility generally is likely to remain elevated. Interestingly, for the first time we are hearing noises out of OPEC about supply constraints after a statement on Monday that said the cartel “stands ready to talk to all other producers”. Interestingly also on Monday the US Energy Information Administration noted that US oil production in 2015 was lower than previously estimated, with production averaging at c. 9.4m barrels per day for the first 5 months of the year (lower than the 9.5m barrels previously thought). Is this an early sign of finally some changes in the supply fundamentals which will benefit the price moving forward?
  • It is my belief that it may not matter about Non-farm Payrolls this week as the FOMC is now almost certainly not going to be able to hike interest rates in September. The release of the most widely watched economic indicators in the world would need to absolutely smash the lights out (say well north of 300,000) and also show a substantial improvement in average hourly earnings for the Fed to seriously think about raising rates in this current environment of high market volatility. Not only that, last week’s US Personal Consumption Expenditure will do little to enthuse the hawks as it dropped back to 1.2% on the core data having been stable at 1.3% for the past 6 months. Jackson Hole had a split of hawkish and dovish views but the balance of the voters still remain on the dovish end of the spectrum and the risks in this current environment are too great. However, we could still be set for a resumption of the volatility in reaction to the release of the Non-farm Payrolls report.
  • On the data front, the week build up with the services PMIs on Thursday and the key payrolls report on Friday. The US data certainly has the ability to drive market volatility, however I do not see them to be game changers. The recent market turmoil may impact on the services industries of respective countries just as it seems to have done on the manufacturing PMIs, and this could drive another flight into safe haven assets.
  • Watch for: ISM Non-Manufacturing, Non-farm Payrolls



EUR/USD – Support above the pivot band $1.1050/$1.1100 remains key for the medium term outlook        

  • Weak data out of China and the US continues to drive the euro higher as traders dial back on expectations of a US rate hike and hence the need to unwind the euro carry trade. Services PMIs and payrolls data this week will drive volatility, however it will also be interesting to hear from Mario Draghi in the Eurozone monetary policy press conference.
  • Having unwound 500 of the 700 pips move higher, the euro is finding its feet again. The fact that trading continues above the pivot band $1.1050/$1.1100 retains a positive outlook and the momentum indicators retain a slight bullish bias.
  • Watch for: ECB monetary policy, ISM Non-Manufacturing, Non-farm Payrolls

GBP/USD – Support in the band $1.5170/$1.5330 could be a medium term buying opportunity

  • Both central banks a going to struggle to raise rates in the current climate and the market is going to have to price this in. Sterling in under pressure near term, but the data driven fluctuations on Cable will continue and I see this as a range play..
  • Technical indicators do not point towards a strongly trending scenario and the range play that has been ongoing for the past few months will continue. This means with technical indicators approaching oversold levels we must be on the lookout for the next buy signal. The support band $1.5170/$1.5330 is a prime area.
  • Watch for: UK Services PMI, ISM Non-Manufacturing, Non-farm Payrolls

USD/JPY – Corrective bias is emerging as the dust settles with pressure turning on 118.30

  • I still expect there to be no rate hike for the US in September and the selling pressure on Dollar/Yen reflects the fact that the market needs to price this in now. This is putting downside pressure on the pair near term.
  • Sharp volatility as the safe haven yen benefits from weaker US and China data. As the market wakes up to the realisation that a September rate hike will not be seen the yen has also benefitted from this. A key band of support comes in at 118.30, but there could be further pressure on this if the US data does not begin to improve..
  • Watch for: ISM Non-Manufacturing, Non-farm Payrolls

Gold – Possible correction back to $1132

  • Despite the huge market turmoil, perhaps it is a disappointment that gold has not been able to rally more?
  • I continue to see the rebound as a bear market rally. The big downtrend resistance comes in around $1160 currently and with longer term technical indicators still bearish this still has all the hallmarks of a rally into the resistance band $1160/$1170 as a chance to sell. Needs a rally above $1205 to abort the longer term bearish outlook.
  • Watch for: ISM Non-Manufacturing, Non-farm Payrolls

Indices – Performance remain dependent on China and the oil price   

  • S&P 500 – The huge volatility continues on Wall Street (as does the negative correlation with the VIX). The technical outlook remains bearish although only once the market has settled down will we really be able to assess the fallout. Key resistance is now at 1985/1994.
  • DAX Xetra – Weak China data is really impacting on the DAX (watch out for the China trade balance on Tuesday) and price indicators remain negative. The resistance around 10,400 is now key as a failure to retake this level amidst the volatility could result in a drift back towards the key low at 9338.
  • FTSE 100 – The index seems to be at the mercy of the oil price now as the bombed out oil sector could drive a significant rally should the oil price muster some decent retracement. However Monday’s resistance at 6248 is now the key barrier to a recovery.



Wednesday 2nd September

  • US – ADP Employment Report
  • US – Factory Orders
  • US Crude Oil Inventories

Thursday 3rd September

  • Eurozone – Services PMI
  • UK – Services PMI
  • Eurozone – ECB monetary policy + press conference
  • US – Weekly jobless claims
  • US – Trade Balance
  • US – ISM Non-manufacturing PMI

Friday 4th September

  • US – Non-farm Payrolls
  • US – Average Hourly Earnings



Monday 7th September

  • US public holiday – Labor Day

Tuesday 8th September

  • Japan – GDP (final reading)
  • China – Trade Balance

Wednesday 9th September

  • UK – Manufacturing Production
  • UK – Trade Balance
  • Canada – BoC monetary policy
  • US – JOLTS job openings
  • New Zealand – RBNZ monetary policy

Thursday 10th September

  • Australia – Unemployment
  • China – CPI
  • UK – BoE monetary policy
  • US – Weekly Jobless Claims
  • US Crude Oil Inventories

Friday 11th September

  • US – PPI
  • US – University of Michigan Consumer Sentiment (Prelim)


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