• Iran threatens ‘asymmetric’ retaliation to future US attacks  
• Fed’s Waller indicates he will support holding rates steady in September
• US stocks, gold sharply higher as Treasury yields retreat
• JPY surges to one-month high under 156 on potential GPIF bond reallocation

Forex

USD fell sharply, again chiefly on the back of another big fall in USD/JPY. The Dollar Index moved below its 200-day SMA at 99.14 as Treasury yields sold off from their multi-month highs for a second day, though moves did retrace towards the close. The January 2025 top at 4.83% has so far acted as resistance. Recent lows for the dollar sit at 98.55/56 with the midpoint of this year’s low to high move at 98.67. Services ISM came in stronger expected but the influential Fed’s Waller surprisingly said he could support a rate hold if price pressures cool, which boosted risk assets. All eyes are now on today’s NFP report.

EUR tapped the 200-day SMA at 1.1631 as the single currency benefitted from the Dollar Index move lower. Remember that the euro has by far the biggest weighting in that index. ECB rate hike bets have firmed this week with one nailed on next week, and another nearly fully priced by year end and three moves by April 2027. That seems a lot to us. Initial support sits around 1.1564 and the August peak is 1.1711. EUR/USD’s forecast maximum reactions over a 6-hour period after the NFP report is released is seen around +/- 0.3-0.4%.

GBP underperformed again though cable moved up above 1.35. This was helped by BoE’s Chief Economist Pill who said he sees the need to raise the bank rate to 4% to help reduce uncertainty, steer market and head off potential ‘catch-up’ dynamics. That said, there’s very little priced into the mid-month BoE meeting, with then a 70%+ chance of a November hike, in which we also get the quarterly policy report and forecasts.

JPY outperformed strongly again with a huge move from the open at 158.68 down to the lows of the day at 155.27. The spike lows from May and previous intervention from August lie around 155.02/22. Although there is much speculation about more intervention, price action seems more gradual, and we think the news around the government pension investment fund (GPIF) is potentially more important. The world’s biggest pension pool may be shifting course after a rare committee meeting and raising its allocation to Japanese domestic bonds. That could be a vote of confidence in Japan’s interest rate outlook, further strengthening the appeal of yen-denominated assets. Sources said the BoJ is set to favour a 25bps hike and a “flexible” future pace in policy.

Stocks

US stocks: The S&P 500 added 1.06% to close at 7,748. The Nasdaq closed up 1.16% at 29,482. The Dow Jones settled higher by 1.18% at 5`3,691. Nine sectors finished in the green, led by Consumer Discretionary, Financials and Communication. Materials and Energy were the only sectors to close lower with Consumer Staples flat on the day. Snowflake boosted the software sector some more, after last week’s Salesforce positive earnings report. The former soared over 16.5% after forecasting strong annual revenue. But chips weighed as Broadcom fell to a five-month low, before retracing losses to close 2.7% lower, after its fourth quarter revenue projection fell short of analyst estimates. Meanwhile crypto stocks like Strategy, Coinbase and retail trading platform Robin Hood jumped as bitcoin surged back above $80,000. Tesla jumped 5.4% ahead of its cybercab robotaxi launch in Texas.

Asian Stocks: Futures are mostly green. APAC stocks traded mixed as focus turned to the US jobs report. The ASX 200 saw financials and mining stocks led the gainers, but the upside was capped by mixed trade data. The Nikkei 225 gave back modest gains as rate hike talk saw relatively muted price action. The Hang Seng and Shanghai Comp were mixed even though PMI data came in better than expected.

Gold moved up for a second day and has jumped nearly 5% since near one-month lows were posted early on Wednesday. Dip buyers have been busy, as we said yesterday, as Fed rate hike bets have cooled. The midweek above 70% chance of a move in a few weeks has been pared back to a 50:50 bet, ahead of today’s NFP.

Day Ahead – US Non-Farm Payrolls, Canada Jobs

The monthly US jobs report is expected to rebound after a volatile series. The headline print is expected at 58k jobs added in August, above the prior -23k, after May and June were revised down by a cumulative 103k. The unemployment rate is predicted to remain at 4.1%, while wage growth is seen at 0.3% m/m and 3.2% y/y. The low hire, low fire environment is predicted to continue, with the participation rate in focus after the recent fall implied that unemployed people have been leaving the workforce entirely. Fed Chair Warsh’s surprisingly hawkish speech at Jackson Hole last week focused squarely on bringing inflation back to target, while reinforcing policymakers’ view of a stable labour market. But certainly, another very weak jobs data could again see traders question the need for policy tightening.

It’s a Friday where we get a simultaneous release of the Canada jobs numbers as well. Consensus sees the headline print at 17.5k, down from the stellar 75.1k growth in July. The jobless rate is predicted to remain unchanged at 6.4%. August is normally a seasonal down month for employment in Canada. But there should be decent momentum in the economy given strong Q2 GDP. This week’s BoC meeting was seen as a ‘hawkish hold’ with inflation risks rising and Governor Macklem explicitly opening the door for more rate hikes.

Chart of the Day – USD/CAD falls close to cycle lows

Recent consolidation in this major looks bearish and a healthy pause for breathe  after Wednesday’s more hawkish than expected BoC meeting and price action confirmation yesterday too. A low close for USD on Wednesday, plus a false upside breakout saw a bearish outside range reversal print on the daily chart. More losses for the dollar confirmed this pattern on Thursday. Short term bearish momentum has picked up sharply, suggesting that more USD losses are likely, down towards the August low at 1.3731. Trends should reinforce USD resistance in the 1.3900/20 zone. Current prices sit just above the major Fib (61.8%) of the 2026 low to high move at 1.3774, with the next retracement level at 1.3645, while above is the halfway point of that move at 1.3884. North American job data days typically means USD moves trump the Canada data.