The Dollar is strengthening ahead of the Non-Farm Payrolls report this Friday

The US Dollar advanced against its peers following a surge in September manufacturing activity to over 13 year highs.

The Dollar is strengthening ahead of the Non-Farm Payrolls report this Friday

Strong Dollar

The US Dollar advanced against its peers following a surge in September manufacturing activity to over 13 year highs. The Euro sank after Spain’s Catalonia independence vote turned violent with hundreds injured in clashes with police. Sterling fell following weak UK manufacturing data and ongoing concerns about PM May’s government.

In data released yesterday:

Japanese Tankan Manufacturing Index rose to 22 from the previous 17.
Spain’s Manufacturing PMI rose to 54.3 against a forecast 53.2
Euro Zone Final Manufacturing PMI printed at 58.1 against a forecast 58.2
The Euro Zone Unemployment rate rose to 9.1% against a forecast 9.0%
UK Manufacturing PMI missed at 55.9 against a forecast 56.3 and previous 56.7
US ISM Manufacturing PMI rose to 60.8 against a forecast 52.9 and a previous 58.8


Wall Street led global stocks higher. The US DOW advanced 0.65%, finishing at a fresh all-time high of 22,543.

Brent Crude Oil prices slipped 1.25% to US$ 56.07 (US$56.75 Friday).

USD/DXY – The Dollar Index rose to 93.613, up 0.54% at the close.
EUR/USD – sank 0.6% to close at 1.1740 (1.1817 yesterday).
GBP/USD – fell to 1.3280 from 1.3397 yesterday.
USD/JPY – higher, ends at 112.70 from 112.47 Monday.
AUD/USD – finishes mildly lower at 0.7830 from 0.7837 ahead of the RBA policy meeting today.
USD/SGD – closes up to 1.3615 (1.3575 yesterday). The Dollar managed gains against all EM currencies.


Outlook: The Dollar’s medium term recovery is underway buoyed by an improvement in US data while the European political risk is growing. The strong manufacturing report yesterday may have been distorted by disruptions to the supply chain but the growth was still far above expectations.
Manufacturing activity in Japan, Spain and the Europe Zone improved which enabled global stocks to rally. We pointed out last week that political uncertainty outside of the US is growing after the German and New Zealand election results. The recent horrific gunshot deaths in Las Vegas, USA have had no effect on the market as of yet. Finally, market positioning remains well short of US Doll
ars. Total net speculative US Dollar shorts increased in the latest Reuters/CFTC data (week ended Sept 26).

Events and economic data releases for today:
Australia September Building Approvals (GMT 12.30 am, Oct 3/Local Time 11.30 am, Oct 3): forecast: 1.1% from the previous -1.7%
RBA Interest rate decision, Cash Rate
and Rate Statement: (GMT 3.30 am, Oct 3/Local Time 2.30 pm, Oct 3) The RBA is expected to leave its Official Cash Rate unchanged at 1.5%
Spain Unemployment Change: (GMT 7 am, Oct 3/Local Time 6 pm, Oct 3): forecast: 21.3k from the previous
UK Construction PMI: (GMT 8.30 am, Oct 3/Local Time 7.30 pm, Oct 3) forecast: 51.0 from previous 51.1


Trading View: After a brief pause on Friday, the Dollar’s bid tone returned yesterday. The Dollar Index (USD/DXY) closed at 93.613, just below the strong resistance level of 93.70/80. A break of the 93.70/80 level would lead to a test of 94.00, with the potential of 96.00. (See Chart below).

While economic data releases will be important in the days ahead, the political risk factor in Europe looks set to grow. Brexit’s outcome is still uncertain and the Italian elections are coming up.
Market positioning will certainly be a factor. The latest CFTC/Reuters Commitment of Trader’s Report (week ended Sept 26) saw an increase in total net speculative US Dollar shorts to -USD 119,700 contracts from -USD 101,300. The breakdown in the individual currencies is again of interest.

EUR/USD – The Euro closed at 1.1817 in New York on Friday before slipping immediately in early Asia to 1.1770 on the Catalonia news. We saw a drift lower in slow Asian trading due to the Australian Labor Day holiday. The Euro traded to a low of 1.1730 overnight, finishing at 1.1740. EUR/USD has initial support at 1.1730 and then at 1.1700. Immediate resistance lies at 1.1760 and then at 1.1790. A break through the 1.1700 level would see 1.1660/80, which were August’s
lows. The risk is still for a lower EUR/USD with 1.1500 possible. Look to sell rallies with today’s likely range 1.1710-1.1760.



GBP/USD – fell to a low of 1.3256 overnight before settling a touch higher at 1.3280. GBP/USD has immediate resistance at 1.3300 and then at 1.3330.
The initial support can be found at 1.3250, a break of which should see 1.3200. The certainly opens the downside in GBP/USD to more potential. Likely range today 1.3250-1.3300. Look to sell rallies.




USD/JPY – closed slightly higher to 112.70 from 112.50. The Dollar drifted higher against the Yen but stopped short of the 113.00 mark (overnight high was 113.06). Stronger than expected Japanese Tankan Manufacturing data supported the Yen. However, the broad-based Dollar strength will keep USD/JPY bid Immediate resistance can be found at 113.00. There is good support at 112.40/50. Likely range today 112.50-113.10.



AUD/USD – finished little-changed at 0.7830 from 0.7837 yesterday. Robust manufacturing gains in Japan, Spain, Europe and the US all auger well for global growth. This is generally Aussie supportive. However more sustained US Dollar strength will eventually weigh on the Australian Dollar. As will market positioning. AUD/USD has immediate resistance at 0.7850 (overnight high was 0.78475) with good support found just under the 0.78 cent area. The overnight low was 0.7795. The RBA interest rate decision and statement are released later on today.


The Australian central bank is expected to keep its cash rate on hold at 1.5%. The accompanying statement is likely to be similar to that of the past few meetings. Look to sell rallies to 0.7850 with today’s likely range 0.7790-0.7850.




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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making, but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.





Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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