EUR/USD firms in Asia ahead of what is expected to be a volatile ending to a volatile week

• EUR/USD bulls step in ahead of the all-important NFP.
• The markets are looking for confirmation that the Fed will hike by 75bp in Sep.

In increasing forex volatility, EUR/USD is rising in Tokyo as the bulls move in ahead of Nonfarm Payrolls in the US session. The single currency has been on the move in the final sessions of the end of the week, dropping against a strong US dollar that vaulted to a 20-year high on Thursday after US data showed a firming economy, giving the Federal Reserve more room to aggressively hike interest rates to quell inflation.

EUR/USD fell from a high of 1.0050 to a low of 0.9910 and is back trading in the middle of the 0.99s as markets prepare for what could be another hectic day of volatility on Wall Street. On Thursday, a surprising late-day reversal lifted US equities, supporting the euro which is tied to risk appetite. 

However, the US currency has kept the upper hand in the remaining hours of this week. The DXY, which measures the greenback vs. a basket of currencies, firmed after a government report showed that the number of Americans filing new claims for unemployment benefits declined further last week. This was consistent with strong demand for workers and tight labour market conditions.

The DXY firmed to 109.99, its highest since June 2002. Additionally, data from the Institute for Supply Management (ISM) showed US Manufacturing grew steadily in August as employment and new orders rebounded. This helped push the yield on the benchmark 10-year US Treasuries to a more than two-month high of 3.297.

All in all, there are expectations for a third straight 75-basis-point US rate hike at the Sept. 20-21 Fed meeting. Fed funds futures last pointed to around a 77.1% chance of such an increase on the back of this series of solid economic data. If Nonfarm Payrolls come in hot, this could help the safe-haven dollar attract more demand as it will cement a 75bps hike from the Fed should the number of new jobs beat the 300k consensus estimate.

The jobless rate is projected to remain unchanged at 3.5% while the labour participation rate is seen ticking up to 62.2% from 62.1% the month prior. Average hourly earnings are expected to increase by 0.4% in August after a 0.5% gain in July, but the year-over-year rate would rise to 5.3% from 5.2% in the previous month due to base effects. The average workweek is expected to remain at 34.6 hours.

• US NFP: Exepct a 300K increase for August – Goldman Sachs