U.S. Dollar facing election risk and Non-Farm Payrolls ahead

Earlier this week, the U.S. Dollar sold off on a factor of election risk, drop in oil price, and a lack of direction for the December rate hike.

Here are the keypoints to framing the sentiment on tomorrow’s 8:30 a.m. Non-Farm Payroll release:

  • Both Brent crude futures and WTI ┬ásits under the $50 per barrel mark
  • Global crude supplies is still outstripping demand and OPEC producers and Russia have yet to reach an agreement for a production cut
  • Election poses a “Trump-risk” when it comes to his stance on foreign policy, trade, and the global economy with possibly tax on imports, scaling back on foreign production of domestic corporations, and restriction of free trade
  • U.S. yields have fallen across the board signaling over-demand for fixed-income security

Taking a look at the technical setups, the Japaese Yen rallied 300 pips against the U.S. Dollar as traders looked to switch load up on the Yen for safe haven measures.

USDJPY 30-Minute

Over the past four days, this pair sold off rapidly a 300~ pips move. This currently may mark the end looking at the current possible offer exhaustion. Highlighted in the white box, was another sell-off attempt that seemed to have failed.

I took a pre-liminary long entry on USDJPY in anticipation of tomorrow’s rate hike. The current election risk may be an overreaction. Up to this point, here’s what we know:

  • Bank of England dialed back on rate cut possibilities, but did warn of a possible spike in infation due to the sharp drop of the Pound approximately 1,300 pips since September and 3,000 pips since June, 2016
  • Economic growth is expected to be stronger than previously anticipated with more competitively priced exports
  • New Zealand’s unemployment rate declined to 4.9%, the lowest since 2008
  • U.S. YoY inflation rate rose to 1.5% in September to the 2% target

Positive payroll figures will most certainly play a key role in December’s rate hike decision to keep inflation under check despite last month’s unemployment rate rose 0.1% to 5%. Given the extent to which traders have loaded up on short positions, any positive release will encourage short coverage as well as long position entries magnifying the upwards movement.


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