LONDON — The risk complex traded sharply lower yesterday, as investors ignored an encouraging weekly jobless claims report (881k vs exp 950k) and mostly in-line ISM non-manufacturing index (56.9 vs exp 57.0), to instead reduce risk ahead of the US Labour Day long weekend (Monday 7th Sept). This is giving credence to the rotation narrative were by the rising best performers are hit hard and the underperformers find investors. So, we have seen a sell-off in tech and buyers coming in for stocks like cruise-liners and retails, but they are still down between 25-65% YTD. The tech-led US equity losses have pressured Asia regional bourses overnight, though worth noting the moves lower have been less panicked. Taking into consideration G10 FX's correlation to risk, it feels to us that the market is uncertain if there is more near-term USD strength or whether this is the pullback to fade. EUR held in fairly well, especially considering the growing chorus of ECB policymakers who are referencing the currency's strength. This policymaker rhetoric is not uncommon following periods of EUR appreciation, but in our view is unlikely to derail the underlying trend — for example EURUSD repriced from 1.20 to 1.16 over 2 months after the ECB made a point of the post-French Election EUR rally in 2017, before the currency pair resumed its appreciation higher. The 1.17s should be a chunky support area given that the last three dips in EURUSD held it, however breaking through will pave the way for a deeper decline. Perhaps most interesting was USDEM price action, as high-beta EM currencies failed to sell-off in the risk complex spill, indicative of subdued positioning. ECB next week will be a key focus and the market will be looking for any rhetoric around currency strength. Later Friday, key market focus will be August NFP report with market consensus of a +1.35m print vs +1.763m last time round. EURUSD – the euro found support at the 200-period SMA as expected, bouncing back towards the 50-period SMA as the immediate bearish bias has been neutralized for now ahead of the US NFP release. The dollar might find some haven bid today and push the Single currency towards 1.17, if the economy added less jobs than expected, leading for a further drop in the equity markets. An upbeat data, however, will likely restore the US stock markets' risk sentiment and weaken the haven demand the dollar, strengthening the pair higher towards 1.19. GBPUSD – found support at the 50-period SMA ahead of the key US NFP release, ignoring downbeat catalysts like Brexit woes and tax hikes. Yesterday, PM Johnson demanded that British fishermen double the size of their catch from Britain's coastal waters, leading to a deadlock in post-Brexit trade. This move increased the odds of a no-deal Brexit which made JP Morgan to say, "there was about a one-third chance of a no-trade deal Brexit at the year-end but now it appears to be a much greater risk." Other than the US jobs report for August, the UK Construction PMI will offer short-term moves, but the main focus will be on the US NFP and how will the Dollar react to it. USDJPY – the dollar/ yen touched our 106.50 resistance Thursday and pulled back to find support around 106.10, after equities entered a sell-off spiral that saw US indexes trim all of their August gains. Also, US Treasury yields started the day ticking higher but ended up losing ground and reaching fresh weekly lows. Market participants will likely wait until the US NFP release before entering any aggressive bets. As long as 106 support holds, then we could see the pair retesting yesterday highs. FTSE 100 – hit our short entry support targets lower as it ended yesterday's session 2.60% lower following a tech led plunge on Wall Street, with an hourly close below our support at 5800 to favor further downside with 5700 as the next support target. Investors look ahead to today's UK Construction PMI and Nonfarm Payrolls data out of the US. DOW JONES – in Thursday's note, we expected prints below 29000 to accelerate a pullback lower, however did not expect a rout in tech stocks to wipe off $750 billion from the Nasdaq as the Dow closed 2.45% lower at 28374. Today investors await US Nonfarm payroll data, which should provide some answers on whether this was a risk off move, or simply some profit taking ahead of expected volatility. Failure to print an hourly close above 28374 will keep the bears in control favoring a retest of 28125 support level. DAX 30 – a rout in US tech stocks spilled over to European markets as the Dax ended yesterday's session 2.70% lower, closing below the 13000 mark. German Factory Orders (MoM/July) released early today came in worse than expected at 2.8% vs. 5% and a previous of 28.8%, continuing to weigh down on the index, with an hourly close below 13000 to favor further downside with 12800 as the closest support target. GOLD – a risk off move in the equity markets failed to trigger demand on the yellow metal safe haven as it retreated in yesterday's session towards our support target at 1920 as investors await US Nonfarm Payroll data which is expected to show a continued pickup in recovery however at a slower pace, weighing down on Gold as we print below the 200 period SMA. USOIL – WTI crude hit our short entry support targets, ending yesterday's session at its lowest in nearly four weeks, weighed down by a stronger greenback and increased jitters after global equities registered significant losses that were led by a rout in tech stocks. All eyes Friday on the payroll data and Baker Hughes rig count out of the US. — The writer is chief market analyst, Squared Financial
