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A mixed payrolls report probably will not do much to shift the prevailing bias in FX markets. Instead, the market might return to reacting towards risk sentiment more broadly, which was initially undermined by a positive COVID-19 test for President Trump, as economists at TD Securities note. With uncertainty to remain elevated, the tactical setup is more favorable for the USD. The exception is USD/JPY where they think downside structures will gain traction.

Key quotes

“Payrolls were +661K in September, below the +850K consensus; we had forecast +400K. Revisions added 145K to the previous two months. The unemployment rate fell to 7.9% from 8.4%, below the 8.2% consensus (TD: 8.4%), but mainly because of a 0.3pt drop in the participation rate. Average hourly earnings were +0.1% MoM (consensus: 0.2%, TD: 0.0%); the YoY pace remained high at 4.7% after 4.6% (revised from 4.7%), but the strength reflects mix shifts, with much more weakness in low-wage than high-wage jobs.”

“With payrolls out of the way, we think FX will be more focused on broader risk sentiment that has been undermined by Trump’s COVID-19 infection and what that may mean for the election.”

“With uncertainty rising, the tactical setup seems to favor the USD. The exception may be USD/JPY where the 105.20/30 pivot is key; 1M vols have popped higher overnight so would expect downside structures to gain traction.”