03/10/2014: Will Non-farm Payrolls and the ISM Non-manufacturing data scupper the dollar bulls again?

The rebounds that many of the major currencies have seen against the dollar over the past couple of days is already unwinding as key levels on several pairs are being tested again. Dollar strength today is coming in front of the US Non-farm Payrolls data but much of the preference for the greenback has come as the European services PMIs have disappointed.

However this could mean that this afternoon could be even more volatile than usual as there are two key announcements out of the US. Starting at 13:30BST we have then Non-farm Payrolls report which is as ever the key data release that traders look out for on a monthly basis. US economic data has been a touch light recently, with Consumer Confidence, the Manufacturing PMI and factory orders all disappointing. However, viewed across the whole of September, the weekly jobless numbers are at their lowest point since 2006 after having jumped slightly a month ago. This points towards a rebound in the Non-farm Payrolls data with an expectation of 215,000 and if the ADP Employment report is anything to go by from Wednesday (hitting 213,000 jobs for the month versus a 210,000 expected) then it is not going to be far off.  The chart below  shows ADP (purple) and Non-farm Payrolls (orange). Whilst the ADP number tends to be less volatile than Non-farms, but there is certainly a similar trend, especially through 2014. Focus will also be trained on the average hourly earnings data which would create dollar strength if there is an improvement on the +0.2% expected by the consensus.

NFP v ADP

However that takes us to the ISM Non-manufacturing PMI at 15:00BST which could create extra volatility and there could be cause for another dollar retracement. After the ISM manufacturing data missed expectations on Wednesday, the dollar had a strong correction. The data followed a trend that had been seen in several of the European economies (Eurozone, Germany, and UK all showed deteriorating trends) but the market had come to believe that the US was more sturdy. A disappointing services PMI this afternoon from the US could cause another blip for the greenback.

Despite this though, in front of the data we have seen the dollar gaining almost half a percent against the euro, sterling, yen and the Aussie dollar. Within those moves, some crucial levels that had been breached yesterday are now being retested again. The euro is in the process of breaking back below an intraday higher reaction low at  $1.2615, Dollar/Yen is retesting the resistance at 109.10, whilst the Aussie dollar is dropping back to test 0.8750. Cable has not even attempted a rally and did not take part in the dollar retracement over the past few days is dangerously close to testing the $1.6050 key multi-month low.

Many other markets have been broadly stable through the morning. European indices are settled having played catch up on the strong close on Wall Street last night. S&P 500 futures are suggesting gains of around 7 points at the open. Also gold has been solidly lower since dipping towards $1207 early in the European session.

As ever much seems dependent on Non-farm Payrolls this afternoon to create direction and volatility, however be careful of the reaction to the ISM non-manufacturing data to add extra spice this afternoon.

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