Dollar and yen were both boosted by overnight's sharp fall in US stocks and treasury yield and remain firm on broad based weakness in Asian equities. Disappointing economic data from US this week triggered renewed concern on the health of the current economic recovery and investors are cautious ahead of today's Non-Farm Payroll report. S&P 500 dived through last week's low and closed -2.58% lower at 1029.85, and confirmed resumption of recent fall from September's high of 1080. Nikkei dropped further away from 10000 mark to close at 9731 which also affirm the case that it has topped out at 10767. Risk aversion will possibly be back as the main theme in October.

The closely watched September NFP is expected to show -187k contraction the US job market, much improved from prior -216k. Unemployment rate is expected to climb further from 9.7% to 9.8%. Leading report to NFP are mixed with drop in 4 week average in jobless claims as well as continuing claims, sharply lower planned layoffs from Challenger report. However, note that consumer confidence dropped from 54.5 to 53.1 in September and the employment component of ISM manufacturing dipped slightly. More importantly, ADP employment change missed expectation and improved to -254k only, comparing to consensus of -195k. The difference between ADP in NFP was also big in August at -277k and -216k respectively. Expectation of -187k in NFP in September is a bit stretched and we might indeed get a number which stays below -200k level.

As usual, market's reaction to NFP is quite hard to predict. But in general, we're favoring more upside in dollar in yen based on recent sentiments. We'll remain cautious in case of initial selloff in dollar and yen post NFP. Note favor is still on the upside in dollar and yen unless there is firm break of 1.4672 in EUR/USD, 1.6124 in GBP/USD, 1.0670 in USD/CAD, 132.01 in EUR/JPY and 144.51 in GBP/JPY.

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Elsewhere, unemployment rate in Japan unexpectedly dropped from 5.7% to 5.5% in August while household spending jumped 2.6% yoy. UK nationwide house price rose 0.9% mom in September, better than expectation of 0.7%. PMI construction in UK, EUrozone PPI and US factory orders will also be released later today.

Looking at the dollar index, further rise is still in favor with 76.50 minor support intact. Break of 77.33 will confirm rise from 75.83 has resumed and should target 78.93 resistance next. At this point, we're still favoring the case that whole five wave sequence from March high of 89.62 has completed at 75.83 after drawing support from 75.89 key support level. However, a break of 76.50 will dampen this view and turn focus back to 75.83 low.

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USD/CAD Daily Outlook

Daily Pivots: (S1) 1.0724; (P) 1.0785; (R1) 1.0897; More.

USD/CAD's strong rebound and break of 1.0798 minor resisteance indciates that pull back from 1.0991 has complted at 1.0670 already, ahead of mentioned 1.0659 minor support. Intraday bias is flipped back to the upside for 1.0991 first. Break will bring resumption of whole rebound from 1.0590 to 1.1101 resisteance next for confirmation of medium temr bottoming. However, note that break of 1.0659 will dampen this view and turn focus back to 1.0590 low.

In the bigger picture, fall from 1.3063 is treated as correction to the five wave rally from 0.9056 (07 low). Such decline is possibly completed at 1.0590 on bullish convergence conditions in daily MACD, after missing 61.8% retracement of 0.9056 to 1.3063 at 1.0587. Break of 1.1101 resistance will add much credence to this case and turn focus to 1.1723 resistance for confirmation USD/CAD has bottomed out in medium term. On the downside, while another fall cannot be ruled out for the moment, we'd continue to look for reversal signal as correction from 1.3063 is expected to conclude inside 1.0297/0819 support zone.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
23:30JPYUnemployment Rate Aug5.50%5.80%5.70% 
23:30JPYHousehold Spending Y/Y Aug2.60%-0.10%-2.00% 
23:50JPYMonetary Base Y/Y Sep4.50%6.20%6.10% 
6:00GBPNationwide House Prices M/M Sep0.9%0.70%1.60% 
6:00GBPNationwide House Prices Y/Y Sep0.0%-0.30%-2.70% 
8:30GBPPMI Construction Sep 48.147.7 
9:00EUREurozone PPI M/M Aug 0.40%-0.80% 
9:00EUREurozone PPI Y/Y Aug -7.60%-8.50% 
12:30USDChange in Non-Farm Payrolls Sep -187K-216K 
12:30USDUnemployment Rate Sep 9.80%9.70% 
14:00USDFactory Orders Aug 1.00%1.30%