Good Morning all
It is this time of the month again where we prepare for the NFP…. And this one seems to come with a few interesting twist and turns…. We had the very disappointing ADP miss on Wednesday… a really poor reading BUT we also know , how weak the correlation is between the ADP and the NFP… in terms of misses and beats…. BUT what might also be interesting now…. the market expectations has for sure been revised lower….. a few Banks had the 1 MIO+ number on the radar, personally, I would also go for a very high one… even though I am NOT sure if this month is maybe too early and if it would rather be one of the next two… BUT for all the reasons we discussed in recent weeks… the time is getting closer where we will see a big jump on the topside.
What also adds some spice is that the FED Vice Chair Clarida’s hawkish comments yesterday, has really created quite a lot of interest and rightly so… a leaning Dove or Centrist at best has come out to support Taper later in the year…. FED Daly overnight, a Dove, also talked about Taper later in the year maybe early next….so that would mean, unless the NFP is a real HUGE miss to the tune of the ADP, maybe we do get away with just the consensus number around 870k being seen as good enough to keep the taper idea alive.
I think the trick for tomorrow is really that we have to think that market expectations been lowered quite a bit… and even a number that we would consider average might NOT derail the new found USD bid post Clarida and Daly.
I will focus on just 2 pairs for tomorrow….. and will predominantly trade the Good data… so I am only interested to BUY USD….. if we get a weak one… I might just cut some of the existing risk that I have BUT would NEVER sell USD to go short USD…NOT my side and NOT interested from my broader picture.
I am still a risk rally seller, hence one of the pairs I pick will of course be the AUDUSD to sell… the list of negatives is growing for the AUD and hence maybe the easiest one to sell if we were to get a strong NFP…. Given the EURUSD has refused to break higher and now with the Taper story out there while the ECB is quite far behind… clearly makes it also a prime target and end of the day… EURUSD is also the biggest component of the DXY, so we don’t really get around that and have to be in it.
I will NOT touch the usual obvious ones like USDJPY and USDCHF… both have a few issues that are still hard to read what they are…. And given I am still a risk bear too and still expect the 10% correction in US equities at some point, I do NOT have a big interest in the short term to touch USDCHF or USDJPY for that matter.
Last NFP came in at 850k…. expectations have been around 950k to more.. which I guess is now somewhat lower… the latest consensus I have seen is at 870K BUT I would NOT be surprised if the true consensus is actually lower than that…. my gut feel would be, the true consensus is probably somewhere at 700 to 750k post ADP
Here comes the plan
NFP 700-800K I WOULD NOT TOUCH ANYTHING BUT WOULD BUY A USD DIP IF THE MARKET WOULD SELL USD ON THAT NUMBER
NFP 800-900K WOULD SELL SMALL AUDUSD AND EURUSD
NFP 900K+ WOULD SELL AUDUSD AND EURUSD MORE AGGRESSIVELY AND THE HIGHER THE NFP THE MORE AGGRESSIVE I WOULD BE
NFP 1MIO+ WOULD BUY USD WITH BOTH HANDS… VS EUR AND AUD
NFP 600-700K WOULD STUDY MARKET REACTION AND IF USD DOES GO WEAK.. MAYBE REDUCE MY CURRENT USD LONGS SMALLISH BUT KEEP CORE LONG
NFP 500-600K WOULD REDUCE 2/3 OF MY CURRENT USD LONGS AND WAIT AND SEE
NFP BEL 500K WOULD CUT ALL MY USD LONGS…. BUT WOULD BE ON THE LOOK OUT FOR A NICE LEVEL TO REBUY USD’S
Of course , those of you that know me well, know…. that I have been a USD bull all year and I will be a USD bull for the rest of the year and possibly into 2022… hence I will NOT play the SHROT USD GAME….. my broader picture remains (and got supported by Clarida yesterday) that the Jackson Hole meeting might increase the temperature for Taper… I expect the September meeting to announce Taper officially, possibly starting Dec 2021… hence I see NO reason to focus on USD selling… a weaker NFP this time around would be a temporary setback and I continue to feel that jobs will suddenly improve rapidly for all the discussions we had around people coming back to work once Govt support ends or as I some cases already happening…. Wages go up due to staff shortages…. 2021 is NOT 2008…. Still feel the FED gets the picture around the job recovery NOT quite right (or it doesn’t suit the current political agenda to acknowledge the real problems in the job market) BUT that would fill another page so we leave it.
All that is left to do is, wishing you all good luck and happy hunting tomorrow…
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