An electrifying week is coming up, featuring another crucial US inflation report and minutes of the latest Fed meeting. Both will be key pieces of the puzzle for the dollar and risk assets, as traders grapple with whether the Fed will pause its tightening cycle anytime soon. Even in case of a softer inflation print though, this type of speculation seems premature. 

The USDJPY pair was attacking the critical resistance zone between 145 and 146, where the Bank of Japan intervened several days ago. As of writing, the USD traded somewhat higher on the day, boosted by today's US labor market data. US jobs market remains solid The headline non-farm payrolls came in at 262,000, which was below the unrevised August reading of 315,000 and just over the consensus forecast of 255,000. Notably, the September print was the lowest since April 2021, albeit not terrible. The revision to the change in total nonfarm payroll employment for July increased it by 11,000, from +526,000 to +537,000, and the change for August stayed at +315,000. Average hourly wages increased by 5.0% from a year ago and by 0.3% from August, exceeding estimates by a narrow margin. The former number was also unchanged from the 0.3% increase in August, while the latter dropped from a 5.2% Y/Y increase one month ago. The unemployment rate surprisingly decreased from 3.7% to 3.5%, significantly below the predicted unchanged reading. This was due to a 250,000 decrease in the number of jobless people, who fell from slightly over 6 million to 5.753 million. Cautious trading It looks like the 145 resistance could be broken today, as the USD is being supported by the broad greenback strength and rising US yields. If that happens, we might see a quick leg higher to 146, and if the BoJ does not intervene again, a further rally toward 150 could occur over the next few days. Alternatively, if sentiment deteriorates and bulls will lack the courage to test the BoJ's willingness to intervene, we might see some profit-taking, likely dragging the pair back to 144.

Summary Nonfarm payrolls nearly matched consensus expectations with a 263K gain in September. Job gains were largest in some of the hardest-hit pandemic sectors, such as leisure and hospitality and healthcare. The unemployment rate returned to a 50-year low of 3.5% through a combination of solid job growth and a roughly flat labor force. Wage growth moderated slightly but remains well above rates that are consistent with the Fed's 2% inflation target. Taken together, today's employment report suggests the labor market remained exceptionally tight headed into the final quarter of 2022. There are signs in the data that labor supply and demand are directionally moving toward balance, but gradual improvement should not be mistaken for a completed journey. We continue to look for the FOMC to hike its policy rate by 75 bps at its November meeting, and we await the September CPI report on Thursday for a fuller picture of how the Fed's rate path is likely to proceed through year-end and into 2023. Download The Full Economic Indicator

S&P500 on the four-hour chart is trading muted on Friday, ahead of the widely expected US non-farm payrolls report, which is due later in the session. After falling into the lower half of the Bollinger bands, the index is hanging on the 50-EMA support level, which is in confluence with the last bottom at 3721.6. The recent rally has proved to be short-lived as the bullish bias is losing steam with the price retreating from the 3806.8 resistance region. Though, the next direction of the price depends on the 3721.6 crucial level. Since Bollinger bands exhibit a fading bullish bias, and the bands have been narrowing regarding price consolidation, an emerging M pattern may rule out the market. Thursday’s top, which is totally within the bands is considered a relatively lower top compared to Tuesday’s top, which closed out of the bands. Hence, 3721.6 is the M-pattern neckline, and penetration of this level will confirm the pattern, accelerating bearish sentiment. If that happens, the immediate target for sellers can be estimated at around 3698.4. A sustained move below this hurdle can take the pair down to 3668.9, 161.8% of the last upswing. Further declines will put 3636.4 and 3583.7 in the spotlight. Otherwise, should the 3721.6 level hold, buyers will bounce back toward the 3806.8 mark from the 50-EMA support area. A sustained break of this barrier will pave the way to resuming the rally towards the 200-EMA around the 3856.1 mark. Short-term momentum oscillators imply that bullish sentiment is fading. RSI has dropped to 50 from the overbought level. Momentum, which has seemingly peaked around one-month highs in buying region, is pointing down. Positive MACD bars are shrinking below the signal line.

Let me not mince words. I’m disgusted by the fact that the Republican party nominated Herschel Walker for a seat in the US senate – and that he actually has a chance of winning. I’m disgusted, but I understand it. It’s simply a cynical tactic. Walker’s limitations are so apparent that even members of his own party have publicly acknowledged his shortcomings. They’ll support him anyway and whitewash his deficiencies, however, in an effort to shift control of the Senate to Republican hands. His supporters in Georgia are willing to entrust their representation to an incompetent senator who hardly presents as a moral exemplar solely because they expect him to toe the line and vote with the Republican leadership. Concerns about competency and character simply take a back seat. Actually, that’s an overstatement. Concerns about competency and character are nowhere to be found. Of all the people that Republicans could have chosen in the state of Georgia, what does it say about Republicans that they picked Herschel Walker? It seems reasonable to view putting Walker up for this post as being indicative of the quality of decisions that we can expect from this party; and, unfortunately, this nomination is not unique. It’s just a single representation of what’s happening much more broadly. Across the country, the Republican party is putting up unqualified candidates for public office. For me, the litmus test is easy: Anyone who continues to support the big lie and who acknowledges a willingness to subvert future election results is unfit to hold office – at any level. Herschel Walker is just one of many. Simply focusing on the new crop of election deniers seeking public office in the coming mid-term elections, often in roles with direct authority over election processing, isn’t sufficient. While I view these candidates as being unfit for office, that assessment also applies to the 147 Republican Congressmen – eight Senators and 139 House members – who voted to overturn the 2020 election, the vast majority of whom are up for reelection. Their votes to reject duly authorized electors in the election process should, by itself, disqualify them from any position of public trust. According to US Code chapter 115, “Whoever, owing allegiance to the United States, levies war against them or adheres to their enemies, giving them aid and comfort within the United States or elsewhere, is guilty of treason and shall suffer death, or shall be imprisoned not less than five years and fined under this title but not less than $10,000; and shall be incapable of holding any office under the United States.” I’m no lawyer but it’s hard to see why this section of the code wouldn’t be pertinent to the actions by these 147 legislators on January 6, when those votes were taken. Even if the Justice Department fails to seek sanctions in connection with Congressional representatives who sought to override the will of the people, voters shouldn’t follow suit. I’m appalled by how so many of my countrymen are willing to give a pass to these betrayers of our democratic traditions. Most Republicans appear to believe that it’s worth subverting our long cherished democratic principles and practices to avoid Democratic control; and this perspective seems to be at work both at the state and Federal levels. Whatever the sins of the Democrats, however – and I’ll concede that there may be no shortage – those sins don’t compare to the threat to our democracy caused by the Republicans’ failure to abide by election results. I have little doubt about how history will ultimately look upon the current crop of election deniers; but I’m tired of waiting for that verdict to be handed down. In the most charitable light, those who’ve been duped into believing the big lie despite all the evidence to the contrary may end up being remembered as being naïve and misguided; but those who perpetrated that lie, all the while knowing it to be untrue, will be remembered for sabotaging our democratic norms and traditions; and they will certainly be judged less kindly. These people are still prioritizing their quest for personal power ahead of the public interest of preserving our constitutional democracy. They have no business serving in public office, and the mid-term election isn’t too soon to send that message. To safeguard against having a repeat of the January 6 assault on our Capitol, these election deniers need to be sent packing.

Equities have dropped for a second day, as a healthy set of US job numbers dashes hopes of tempering in the Fed’s hawkishness. Stocks drop back following non-farm payrolls “Those hoping for a Fed pivot have been sorely disappointed with today’s job numbers, which have confirmed that US economy continues to rumble along quite well. The latest bear market bounce has now begun to wilt as investors wearily return to expectations of at least 125bps of tightening by the end of the year, with more to come in 2023. Once more we are back to buying the dollar and selling stocks, in a continuation of the themes that have been so strong throughout the year. Even the impending commencement of earnings season offers little hope, given how weak performance here has been.” Natural gas holds steady after shaky couple of days “The spectre of a cold winter looms large over Europe, and while gas prices haven’t risen much over the past two days, and may struggle now that the dollar is rising again, they still pose a severe threat to the European economy. Demand is sure to pick up into year-end, suggesting that another rally in gas prices is just around the corner.”

Summary Japan's economy has been reasonably resilient so far in 2022. Growth has been moderate, although confidence surveys suggest mixed prospects for different economic sectors, consistent with only moderate growth ahead. We also expect relatively contained inflation going forward as well. While prices are elevated compared to recent history, inflation remains low by international standards. As for the currency, historically there have been two important drivers for movements in the yen: the currency's safe haven characteristcs and Japan's yield differentials with the rest of the world. In more recent times the yen's safe haven properties seem to have diminished to some extent, whereas yield differentials have remained a better indicator of potential trends in the yen. Given that yield spreads appear to be the more influential driver, trends in global monetary policy, especially those of the Federal Reserve, should be influential for the yen. The increasing divergence in monetary policy between a hawkish Federal Reserve and dovish Bank of Japan means we believe the yen still has room to weaken against the U.S. dollar in the medium term, even if the Ministry of Finance intervenes in FX markets again to support the currency. We believe that as yields continue to diverge, the yen can weaken toward a USD/JPY exchange rate of JPY149.00 by Q1-2023, before recovering somewhat as next year progresses. Read the full report here

Outlook: Pivot talk is officially dead. Formerly dovish Minneapolis Fed Kashkari said the Fed is "quite a ways away" from pausing its rate-hike cycle. Chicago’s Evans said the rate will probably reach 4.5-4.75% by next spring. New member Cook said more hikes are needed to tame “stubbornly high inflation.” We get three more today (Williams, Kashkari and Bostic). Separately, the IMF meets next week and is sure to offer more unsolicited and unwelcome advice. The dollar is again too strong, running above 145 against the yen for the first time since 1998. This is a function of US yields rising again while Japan holds the line artificially. Everybody has rising yields. See the chart. The Swiss 10-year is over 1.3% for the first time in 11 years. Payrolls today will be the usual misery for traders. The Bloomberg version is a gain of 255,000 jobs (Reuters has 250,000), and that’s with the government shedding, so all private sector. As usual, the FX market will react to the actual vs. the expected, and if it’s a big gain, like 350,000, it’s conceivable the 100-point hike can come back again, although you’d think the traders would have learned their lesson by now. If it’s a far smaller number, like 100,000, traders will pare back rate expectations to (say) 50 bp and exit fat dollar long positions. The problem with trading the news and especially this news is that crazy people and algos will exaggerate the moves and ram prices right through your stops and targets. It’s a fool’s game. While today’s data may not be meaningful, actually meaningful numbers are lining up behind the curtain. See the chart from Bloomberg and eminently sane commentary: ”…. multiple leading indicators show us that the cycle is peaking and the jobs market will soon start to slow, although we are unlikely to see this clearly in the data for a few months yet. “Until then, the Fed is laser-focused on inflation. And while an unexpectedly very weak set of employment data would prompt the market to increase the size (and perhaps move back the start of) the Fed pivot, a single, notoriously noisy data point will not be enough for the Fed to be confident the inflation wind has changed. Payrolls are likely to be hotly anticipated for many more months to come.” Today is as slow as molasses until payrolls comes out, and even after that bomb, there is little else going on except chit-chat about Elon Musk and what to wear in the Columbus Day parade next Monday. Monday is a national holiday in the US and government offices are closed, but not every bank shuts down and we usually get some trading. FX will be slow and thin because the US bond market is closed, but the stock market will be open. Go figure. The CBOE is open but the CME floor is closed for FX–but Globex is open, so we while we don’t get an official open and close until the next day, we still get some action. It’s very messy. We will publish all reports as usual but not happily because the prices will be sub-par. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

US job growth has remained robust in September – 263K jobs gained.  The Federal Reserve is likely to ramp up its hawkish rhetoric, raising the chances of fast hikes.  Stock advances will likely remain "bear market rallies," and the dollar's reign is set to continue. Winter is not coming – at least not to America's labor market, which remains strong, posting another impressive increase in jobs last month. An increase of 263K is just above 250K seen on the economic calendar and just under the "whisper number" which was around 280K. Leading indicators came out above expectations.  That contrasts with Fed Chair Jerome Powell's "pain" talk – to see inflation falling, the economy needs to suffer.  To put this NFP in proportion, I want to note that the US economy gained some 200,000 jobs before the pandemic, and that was considered healthy, steady growth. The economy is doing better.  A negative jobs figure is unnecessary to see the Fed "pivot" from rapid rate rises. Dollar bears and stock bulls only need an NFP of under 100K to reach the "beginning of the end" of Fed tightening – slower rate hikes. Data for September suggest that a fourth consecutive 75 bps hike is cemented. What about December? Markets foresee a 50 bps hike, and the chances of that softening to 25 bps have dropped. The focus will soon shift to next week's all-important Consumer Price Index (CPI) report. Seeing peak inflation in the rearview mirror is critical for reaching peak Fed hawkishness and a market turnaround. Yet after Powell's "pain" comments in Jackson Hole, current robust job gains suggest that one weak inflation report is insufficient for a Fed pivot – nor a market one.  Inflation slowed in July only to lift its ugly head in August. The labor market looks pretty – too pretty to provide calm for stock investors or dollar bears. 

An electrifying week is coming up, featuring another crucial US inflation report and minutes of the latest Fed meeting. Both will be key pieces of the puzzle for the dollar and risk assets, as traders grapple with whether the Fed will pause its tightening cycle anytime soon. Even in case of a softer inflation print though, this type of speculation seems premature. 

EUR/USD - 0.9790 Euro's selloff yesterday from 0.9926 (Asia) and then break of Wednesday's 0.9835 low (now resistance) to 0.9789 in New York on renewed USD's strength signals decline from Tuesday's near 2-week 0.9999 high to retrace rise from September's 2-decade 0.9537 trough would head towards 0.9713 but 0.9636 should hold. On the upside, only a daily close above 0.9835 would risk stronger gain to 0.9885/95 before down. Data to be released on Friday Japan all household spending, coincident index, leading index, China market holiday. Swiss unemployment rate, Germany import prices, industrial output, retail sales, U.K. Halifax house prices, France current account, trade balance, imports, exports, Italy retail sales. U.S. non-farm payrolls, private payrolls, unemployment rate, average earnings, wholesale inventories, wholesale sales, Canada employment change and unemployment rate.

EUR/USD met with a fresh supply on Wednesday amid resurgent USD demand. Hawkish Fed expectations, rising US bond yields and risk-off lift the greenback. Geopolitical risk weighs on the euro and contributes to the sharp overnight fall. The EUR/USD pair faced rejection near the parity mark and came under renewed selling pressure on Wednesday, reversing a significant part of the previous day's positive move to a two-week high. The US dollar made a solid comeback and stalled its recent sharp pullback from a two-decade high, which, in turn, was seen as a critical factor exerting downward pressure on the major. Fed officials reiterated the US central bank's commitment to controlling inflation and reaffirmed expectations for a more aggressive policy tightening. The markets have been pricing in the possibility of another supersized 75 bps Fed rate hike move in November. This, in turn, pushed the US Treasury bond yields higher and acted as a tailwind for the buck. Furthermore, worries that rapidly rising borrowing costs will lead to a deeper global economic downturn continue to weigh on investors' sentiment. This led to a fresh leg down in the equity markets and was seen as another factor underpinning the safe-haven greenback. On the economic data front, the US ISM Services PMI came in slightly better than estimates and edged to 56.7 in September from 56.9 previous. From the Eurozone, the Services PMI was revised for September and the composite index was finalized at a 20-month low. This comes amid the risk of a further escalation in the Russia-Ukraine conflict, which weighed on the shared currency and further contributed to the EUR/USD pair's overnight steep decline of over 150 pips.   However, spot prices showed some resilience below the mid-0.9800s and rebounded a few pips from the daily low. The recovery momentum extends through the Asian session on Thursday and lifts the EUR/USD pair back above the 0.9900 round-figure mark. Market participants now look forward to the release of the ECB Monetary Policy Meeting Accounts for a fresh impetus. Later during the North American session, traders will take cues from the US Weekly Initial Jobless Claims data and speeches by FOMC members. The focus, however, remains on the closely-watched US employment details on Friday. The popularly known NFP report will influence Fed rate hike expectations, which will drive the USD demand and help determine the near-term trajectory for the major. Technical Outlook From a technical perspective, the EUR/USD pair stalls its recent recovery move from its lowest level since June 2002 near the parity mark. The said handle now coincides with the 50-day SMA and should now act as a pivotal point. A multi-month-old descending trend-line hurdle follows this, currently around the 1.0050 region, which if cleared decisively will suggest that spot prices have formed a bottom and pave the way for additional gains. The subsequent move-up should allow bulls to aim to reclaim the 1.0100 round figure and test the next relevant hurdle near the 1.0120 horizontal zone. On the flip side, sustained weakness below the 0.9900 mark could drag the EUR/USD pair back towards the 0.9860-0.9850 region. Some follow-through selling below the overnight swing low, around the 0.9835 area, will be seen as a fresh trigger for bearish traders and prompt aggressive technical selling. Spot prices might then turn vulnerable to weaken further below the 0.9800 round-figure mark and accelerate the drop towards the 0.9750-0.9745 support zone.