USD/JPY forecast: September highs exposed in run up to Friday’s NFP release

Dollar-Yen pair recovered from the Asian session low of 102.67 in Europe and extended gains to a high of 103.67 levels in the US session after the US ISM non-manufacturing report bettered estimates and showed a biggest rise in the employment index since 1997. The currency pair remains on the front foot around 103.50 levels.

Markets to price-in a strong payrolls number

Demand for the US dollars is likely to remain strong, given the increased probability of a stellar September non-farm payrolls number. Market expects the data due tomorrow to show the economy added 170K jobs, which is a strong figure by itself when viewed in the light of the current jobless rate and labor force participation figure.

Strong service sector employment as highlighted by the ISM figure means the payrolls number could beat the estimates by a wide margin. This is because service sector accounts for 90% of the US jobs. Markets are likely to front run the possible strong data by buying dollars/selling Yen.

Dec Fed rate hike probability stands at 62%

December Fed rate hike probability stands at 62%. Note that Fed is comfortable raising rates only when the market puts the rate hike odds at least above 50%. A number above 60% means the market is more than prepared to digest the rate hike.

Overall, it appears the pair is likely to breach 100-DMA hurdle of 103.67 and move towards 104.32 (September highs). The rising trend could be rocked by resurgence of Deutsche Bank concerns and/or a sharp rise in weekly jobless claims.

Technicals – Overbought on intraday indicators

Daily chart

• Pair’s seven-day winning streak has led to overbought RSI conditions on the hourly and 4-hr chart, which suggests a corrective move to 103.27 (daily pivot) and 102.86 (daily pivot S1) could be seen before 100-DMA hurdle of 103.67 is breached for September high of 104.32 levels.
• Bulls have little reason to worry unless we see a daily close today below 5-DMA level of 102.56 as such a move would suggest a short-term top is in place.

AUD/USD Forecast: Stage set for trend reversal

Aussie dollar ended on largely unchanged on Wednesday at 0.7620 levels. The currency pair is trading on a weaker note in Asia, but is once again finding support around 100-DMA level of 0.7607. A narrower-than-expected Australia deficit number is doing little to help the Aussie dollar.

Technicals- Bulls losing grip

Weekly chart

• The currency pair has had a tough time breaching the long-term descending trend line hurdle on weekly closing basis since August. We see multiple weekly candles with long upper shadows, suggesting exhaustion on the part of the bulls.
• Also take note of the current weekly candle, which shows failure to hold above the trend line (rejected at a high of 0.7691 this week) and a retreat to near 0.76 handle.
• Overall, it appears the spot is likely to test the rising trend line support seen today around 0.7460 levels.
• The stage looks set for the sell-off, given the bearish technical set up and the increased odds of blowout non-farm payrolls number, which would further bolster Fed December rate hike expectations.
• The only thing that could rescue the Aussie is horribly weak wage growth figures.

NZD/USD Forecast: Next stop could be at 50% Fibo retracement

Daily chart

• Pair’s failure to hold above 0.7176 (38.2% of 0.6676-0.7486) in Asia followed by a drop to 0.7159 suggests the upticks are being met with fresh selling pressure and thus the pair is positioned to take out previous day’s low of 0.7149 and extend the slide to 0.781 (50% of 0.6676-0.7486).
• On the higher side, only a daily close above 0.7224 (Sep 23) would signal a short-term bottom is in place and could yield a re-test of 0.73-0.7330 handle.