Eyes on NFP amid edgy risk assets and geopolitical tensions

* Iran Parliament reviews bills to restrict Strait of Hormuz transit, oil jumps
* Alphabet’s jumbo bond sale draws $115bn of investor demand
* Dollar ticks up as markets await Iran deal and look towards payrolls
* Wall Street dips on Hormuz deal doubts and mixed chip earnings

FX: USD went modestly bid as the 100-day SMA proved support around 99.73. Treasury yields rose on higher oil prices amid Middle East escalation, hawkish Fed reports, resilient economic data and Alphabet’s USD bond sale. FT sources stated that Chair Warsh would be willing to raise rates in September should upcoming inflation data surprise to the upside and market pricing move further in that direction. There’s around a 55% chance of a September rate hike and 33bps for 2026 ahead of today’s monthly NFP report. See below for more.

EUR turned lower after bumping into the week’s highs around 1.1559. Fundamentals – that is rate differentials – remain supportive and the euro’s recent recovery has closely mirrored the change in yield spreads. But a further break to the upside likely needs softer US data, with obvious focus on today’s US jobs report.

GBP consolidated and traded in a tight range with an inside day, where prices moved ‘inside’ Wednesday’s high to low range. There’s been very little significant data releases recently while politically motivated concerns following the recent arrival of PM Burnham have mostly been faded as eyes are likely on the Autumn Budget as a potential major risk event. We note EUR/GBP has bounced back to resistance at the 50-day SMA at 0.8583 after hitting 13-month lows in mid-July.

JPY weakened for a third straight day with prices rebounding in the major back above the 200-day SMA at 158.00. Next resistance ahead of the psychologically important 160.00 level sits the rising long-term trendline from the April 2025 low around 159.35. A combination of trade and relative central bank factors need to change direction for a definitive move lower.

US stocks: The S&P 500 lost 0.18% to close at 7,710, the Nasdaq closed down 0.39% at 29,373 and the Dow Jones settled lower by 0.85% at 5`3,890. Only three sectors were in the green, with Energy the biggest outperformer and Healthcare and Tech marginally positive. Industrials, Real Estate and Materials were the main laggards. Chipmakers / memory storage makers like Sandisk (-6.8%) and Western Digital (-13%) came under pressure after issuing weak guidance, while Datadog was down 19% after markets were left underwhelmed despite another earnings beat, wiping out all of the stock’s gains since the end of June. Google eased 1.3% lower after announcing it would sell US-denominated bonds in 10 tranches.

Asian Stocks: Futures are mixed. APAC stocks were mostly lower after the mixed performance of indices Stateside. The ASX 200 climbed for a fourth straight day as it hit a fresh all-time high on mining, materials and resources outperformance. The Nikkei 225 eased back on chip-related softness. The Hang Seng and Shanghai Comp were mixed with trade frictions resurfacing while personal income tax levies pressured insurers on the mainland.

Gold initiallybuilt on the upside breakout on Wednesday as it neared the first Fib retracement level of the record high to June low at $4,338. But gains turned around and went red as both the dollar and Treasury yields were higher on the day.

Day Ahead – US Non-Farm Payrolls, Canada Jobs

Economists polled by Bloomberg expect 80,000 non-farm jobs added to US payrolls in July. This would bring the three-month average down to 111,000 from the prior 188,000. That is still well above the estimated breakeven ranges of 20,000 to 60,000. The unemployment rate is predicted to remain unchanged at 4.2%, one-tenth below the FOMC’s latest projection in June for the jobless rate at the end of the year. Risks are tilted toward the rate rounding up to 4.3%, particularly if we see a larger rebound in the labor force participation rate. Average hourly earnings are seen rising by 0.3% m/m in June, matching the prior rate, with the annual reading also unchanged at 3.5%.

As always, markets will pay close attention to the report, amid expectations that the Fed will raise rates in September to contain inflation sparked by volatile and elevated energy prices driven by the Iran conflict. New Fed Chair Warsh has stressed the importance of data for policymakers, in line with his stripped back approach to communication and a lack of forward guidance. That leaves investors more attentive than in recent times to signals from economic indicators. However, the major focus is on price pressures and price stability so we may need to get an outsize set of data to see decent volatility.

Consensus sees the headline Canada jobs print at 15k, modestly down from 18.2k in June. The jobless rate is expected to stay at 6.5%. Uncertainty surrounding trade pact negotiations remains a constant headwind clouding the outlook. The August 19 deadline for President Trump’s latest tariff salvo looms ever closer.

Chart of the Day – USD/CAD 1.40 support

It’s the tale of two North American job reports today. Watch for volatility in the major, though the figures can often cancel each other out and it is better to look at the respective crosses (or other majors in the case of the greenback) if the release is respectively way off consensus estimates. Markets currently price in around 14bps of hikes for the next FOMC meeting in mid-September, that’s roughly a 55-56% chance of a move. A quarter point rate rise was fully priced before the August Fed rate decision. There’s roughly 33bps of hikes priced in for 2026.

Chart wise, short-term technicals look bearish with this week’s close key for direction going forward. Another weak finish, similar to last Friday could see USD sellers push towards the late March top and major Fib retracement level of this year’s low to high move is around 1.3955/66. This week’s highs, 50-day SMA and minor Fib level reside around 1.4064/80.