Dollar Shrugs off -33K NFP Contraction, Surges on Strong Wage Growth

Dollar spikes higher in early US session even though the headline Non-Farm Payrolls number is a big disappointment. NFP dropped -33K in September, first contraction seen since 2010. That’s also much worse than expectation of 77K. However, it should be noted that the figure was skewed heavily by the impact of hurricanes Harvey and Irma. And the markets seem not to be to bothered by it. Unemployment rate dropped to 4.2%, down from 4.4%, lowest since December 2000. Participation rate also increased to 63.1%, up from 62.9%. The most positive surprise is wage growth. Average hourly earnings jumped 0.5% mom. While wage growth could also be inflated by the hurricanes, it beats an also optimistic expectation of 0.3% mom already.

Released elsewhere, Canada job market grew 10K in September, below expectation of 14k. But unemployment rate was unchanged at 6.2%. Swiss foreign currency reserve hit record high of CHF 724B in September. German factory orders rose 3.6% mom in August. Japan Japan labour cash earnings rose 0.9% yoy in August. Leading indicator rose to 106.8 in August.

Sterling staying weak on political turmoil

Sterling will likely end the week as the weakest major currency on political turmoil in UK. Former Conservative Chairman Grant Shapps admitted that he is leading a plot to force Prime Minister Theresa May to call a leadership election. Shapps said that up to 30 MPs are backing him. May hit back and pledged to stay as "the country needs calm leadership and that is exactly what I am providing." Even worse for the country is that EU ministers are going to meet on October 19-20. Decision will be likely be made that there is not enough progress in Brexit negotiation to move on the the next stage. It’s already unlikely to have any breakthrough in such short period of time. And it’s even harder as May could be fighting her own crisis. So far, no clear contender is named to challenge May yet. But it’s believed that Foreign Secretary Boris Johnson, Home Secretary Amber Rudd, Brexit secretary David Davis, Leader of Scottish Conservative Party Ruth Davidson and MP Jacob Rees-Mogg.

BoJ survey showed fewer people expected price rise

According to a Bank of Japan survey conducted across 4000 households, 70.4% expected price will rise a year from now. That’s a notable drop from 75.4% from the last survey. Meanwhile, 81.4% expected price to rise five years from now, also down from June’s 82.3%. Meanwhile, BoJ’s government bond holds dropped in September, the first time since the massive stimulus program was deployed back in 2013. Holdings dropped to JPY 404.24T in September, down JPY 705b from August. The results showed that BoJ could be starting to slow down the purchases under the Yield Curve Control framework. But a few more months of data is needed to confirm.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9750; (P) 0.9773; (R1) 0.9805; More….

USD/CHF surges to as high as 0.9813 so far after finally taking out 0.9772 resistance decisive. As noted before, fall from 1.0342 should be completed at 0.9420, considering the sustained trading above medium term channel resistance. Intraday bias remains on the upside for 61.8% retracement of 1.0342 to 0.9420 at 0.9990. On the downside, break of 0.9708 support is needed to be first sign of short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could develop into a medium term move and target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9587 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

Economic Indicators Update