Talking Points:
– US Dollar remains weak as US yield curve continues to flatten.
– US data backlog to be resolved starting this week.
– Focus slowly shifting from US fiscal drama to US monetary drama.

The US Dollar’s fate will no longer be decided solely by speculation over fiscal headlines as the reopening of the US government brings a cascade of the missed data since the beginning of October. Notably, US statistics bureaus are operating on an unusual release schedule the next few weeks, resulting in the odd occurrence of having a monthly US labor market report falling on a Tuesday – October 22.

A Tuesday NFP release is a slightly different animal than a Friday NFP release, in the sense that traders will be able to react to the figures for a continuous 24-hour period, rather than facing the imminent close of the European trading session and no Asian session thereafter due to the weekend. Without the need to balance books and close positions for the weekend, traders could treat the figures in a less dramatic fashion.

With a great deal of market focus on the September US NFP figure and the inevitable forced conclusion it will mean for the Federal Reserve’s policy meeting next week, US Dollar volatility should remain elevated in the coming days (though lower than its apex during the fiscal deadlock). However, in light of the US fiscal debacle which created a bigger drag on growth, we do not expect the Fed to taper QE3 in October; and a Bloomberg News survey released last week sees the first cut to QE3 coming in March 2014.

Rate Hike Probabilities / Basis-Points Expectations

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

10/22 Tuesday // 12:30 GMT: USD Change in Nonfarm Payrolls and Unemployment Rate (SEP)
The delayed release of the September US labor figures may have a silver lining: the data set will be more complete as only approximately 70% of firms respond to the Bureau of Labor Statistic’s reporting deadline to be included in the NFP survey pool. With the release three weeks late, a more complete picture may be painted of the US labor market.

As such, the +180K expectation will be important to achieve if the US Dollar is to regain footing. With Initial Jobless Claims hovering near post-2008 crisis lows and the Employment subcomponents of the ISM Manufacturing and Services reports holding in modest growth territory, we find a print in the range of the six- and 12-month jobs average of +160-184K likely.

A soft NFP figure, and generally speaking weak US economic data, will have a more amplified negative impact on the US Dollar than a strong figure would help it, as market participants have started to unwind the US yield curve’s pre-September FOMC price action (which amounted to US Dollar strength as the yield curve steepened) – a sign that QE3 will indeed continue into early-2014.

CONSENSUS: +180K; Unemployment Rate at 7.3%.
PRIOR: +169K; Unemployment Rate at 7.3%.

The key pairs to watch are EURUSD and USDJPY.

10/23 Wednesday // 00:30 GMT: AUD Consumer Prices Index (3Q)
The Australian Dollar’s exchange rate tends to have a meaningful impact on prices, which is why we should expect the decline in Australian inflation to turn around soon – just not yet. Australian inflation bottomed in mid-2012, within three quarters after the AUDUSD had achieved its yearly high above $1.0800. The 2013 high in inflation was within three quarters after the AUDUSD had set its 2012 yearly low.

Accordingly, incoming inflation data being revealed now illustrates the combined impact of an elevated Australian Dollar exchange rate and slowing Australian growth in the early parts of 2013. The weaker Aussie midyear should result in inflation figures showing a turnaround by the 1Q’14; and barring a significant miss (
Source: Daily fx