The US government shutdown earlier this month resulted in a delay to the release of several economic reports, including the non-farm payrolls figure for September. This report is up for release this week, and could create a huge amount of volatility in the foreign exchange market as traders look to absorb the data.
The September report is projected to show a stronger increase in hiring, with estimates ranging from 179K to 185K. This is higher compared to the August figure of 169K, but is expected to keep the jobless rate steady at 7.3%.
Take note that the FOMC (Federal Open Market Committee), which is the US central bank’s group dedicated to making monetary policy decisions, is scheduled to make its interest rate decision at the end of this month. This means that the upcoming NFP release could play a crucial role in determining potential monetary policy adjustments.
Bear in mind also that the tapering of bond purchases is still an issue among Fed officials. FOMC members have decided against reducing stimulus in their September meeting as they anticipated that a government shutdown would take place and that this would have negative repercussions for growth.
Now that the shutdown is over, the possibility of a taper for this month or at least before the end of the year has resurfaced. This can be encouraged by strong jobs gains for September, which might wind up positive for the US dollar. On the other hand, a weak jobs report could convince most foreign exchange market traders that a taper is unlikely to happen within the month or the year, which might then be negative for the US dollar.
One important thing to remember, is that the US dollar seems to have been reacting to risk sentiment as of late. This was evident when the US government ended its shutdown and averted a default, resulting in a massive dollar selloff as traders pursued higher-yielding and riskier currencies.
In light of this, we might see a conflicting reaction from the US dollar in the foreign exchange market upon the release of the NFP figures for September. A reading higher than 200K might wind up being positive for risk sentiment and usher in further dollar losses while a reading below 150K might spark risk aversion and trigger dollar buying.
As for USD/SGD, the actual reaction of the currency pair might be tricky. Note that the pair is currently consolidating above the 1.2400 major psychological support level and a breakdown might mean a move south to 1.2200, which is the next visible support zone seen on the 4-hour time frame. A stronger selloff could mean a drop to the 1.2000 major psychological support on the longer-term, which is the next established support zone on the daily chart.
On the other hand, a rally could mean a bounce back to 1.2450 but the climb might be short-lived if traders still doubt that a taper will happen this 2013. In fact, most analysts are not expecting to see further monetary policy adjustments from the Fed even until next year as incoming Fed head Janet Yellen is a known dove.
The Foreign Exchange Market Is Risky
Always remember that nothing is certain as far as currency markets are concerned, and this makes exposing your capital to them extremely risky. Make sure you have the ways and means to get out of a trade in plenty of time if it starts to move against you.