USD
Payrolls later today remain the main market event of the week. Indeed, many including ourselves, see the release as pivotal for the Fed, and likely to determine whether a 25 or 50bp rate cut should be the FOMC base case later this month. Consensus expectations look for a 165k reading, an outcome that would steer towards a smaller dose of easing in our view. That said, anything close to a repeat of last month’s 114k print is likely to resurrect recession fears entailing a more aggressive path lower for US rates. Admittedly, data has favoured the latter outcome so far this week, with undershoots across JOLTS, ADP, and ISM services employment readings, with this backdrop weighing notably on the greenback. Even so, how far this can continue without triggering a haven bid is becoming an increasingly urgent question. With the 10Y below 3.7%, treasury yields look increasingly priced for recession in our view, meaning that a further rally across bonds could open up the left-hand side of the dollar smile in a contrast to recent price action. Nevertheless, we think the most likely FX outcome is a dollar rally on data that matches expectations, allaying fears of an imminent US downturn – something that we anticipate needs to wait for 2025 to be a more warranted concern.
EUR
While US jobs data is likely to be the key factor determining how EURSUD trades ahead of the weekend, eurozone industrial production data is providing the main entertainment for us this morning. In Germany, this saw a fall of -2.4% MoM in July, while French industrial output was down -0.5% MoM over the same period. In both cases this undershot expectations, indicating that the eurozone manufacturing recession continues unabated. More surprisingly, this is yet to weigh notably on the euro, with EURUSD posting gains so far today. Nevertheless, we continue to think the euro looks rich, with a break lower likely this afternoon if nonfarm payrolls match consensus predictions.
GBP
A light data calendar should keep the pound trading at the mercy of external conditions ahead of the weekend. Like the rest of the G10 complex, this puts US payrolls front and centre for sterling traders. Given that we look for a print that broadly meets expectations later today, this should see GBPUSD downside to end the week, with a break back below 1.31 not out of the question if today’s jobs data exceeds expectations.
CAD
The Canadian dollar has been a notable underperformer this week – unchanged against the greenback – with only Antipodean FX turning in softer results amongst the G10 FX complex. Even so, this makes sense to us. The BoC cut rates, domestic fundamentals look weak, while oil and equities have both failed to offer a loonie-positive backdrop. Whether or not this underperformance can translate into USDCAD upside now depends on payrolls later today. We think it will, looking for another round of weak Canadian prints to contrast with a rebound in US nonfarm payrolls, an outcome that should leave USDCAD on the front foot to end the week.
