The limbo between NFP and rate decision

Non-farm payrolls result: 113k payrolls added but the unemployment rate rose to 4.8% in July from 4.6% in June, the highest it has been since February. But you see, the FX market isn’t too pessimistic yet, even though it has very high hopes for a Fed rate pause this coming Tuesday on 8th August. The futures market has now priced an 80% probability that the Fed would keep rates on hold this Tuesday.

Right now, USD/CHF stands at 1.2233, which was the close of Friday. Watch out for 1.2176 support level, which is a 61.8% Fibo level, and also is near to the daily low at 1.2185 on 7/7/06. Should this give way convincingly, expect a move lower to 1.2065, which should be the first target objective.

Still, a pause isn’t guaranteed. The Fed’s decision is complicated by inflation, which has steadily increased in recent months even as the economy has cooled. If the Fed does spring a 25 bp rate hike on Tuesday, expect even bigger moves than if it does not, since the majority of the FX market is poised for a rate pause, and US bears would have to scramble desperately to cover their shorts.

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