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The two main drivers of the Forex markets this week have been the NFP, other reports, and the discussion about the Syrian Civil war. Most of the impact of the reports has now become part of market history, but not so with the Syrian situation.

The G20 meeting in St. Petersburg, Russia this week has provided the stage for some of the conflict. Russia continues to claim their continued support for the Assad government, and is moving more military vessels to the area. Hopefully their action is symbolic.

The most worrisome dialog may be coming from the Iranians, the allies and sponsors of the Assad government. The threats may be in large part the strength in the energy markets today. The WTI contract is up almost $2.00 per barrel to 110.40, while Brent crude is even higher, $116 per barrel. Oil at this price or even higher is a certain drag on the global economic recovery.

Together the Syrian crises, higher crude, and a tepid NFP report have been negative on equities. It is surprising that market is as strong as it is, and considering September can be a nasty month, caution may be in order.

The US unemployment rate dropped to 7.3%, down 0.1%. To achieve this improvement, a record 516K potential workers had to drop out of the workforce in the latest month. This takes the Labor Force Participation Rate with a record of 90.5 million no longer searching for work, down to 63.2%. Not since 1978 during the Jimmy Carter administration has the percentage working been so low.

Continuing with the news, there were 169K added to the workforce, less than anticipated, but as pointed out by one of the administration's media cheerleaders, more full- than part-time jobs. Of those jobs created, 44k were in Retail Trade, 27k in Leisure and Hospitality, and 13k in Temp Help Services. None of these are high paying jobs. And one final note: the NFP number last month was adjusted down to 104K from 162K.

Reading these numbers, it is hard to get enthusiastic about the strength of the US recovery. It seems this was the impression traders had, selling the USD versus other major currencies.

As we noted earlier, we felt the yen was due for a breakout. It turns out the breakout was to the down side versus the USD. After today's negative US report , the yen gained back a major portion of the week's loses.

Early next week we will get some Japanese economic news, which may provide some help with the yen's direction. The Japanese GDP Q/Q is forecast to be up 0.9, better than the previous 0.6. At the same time, we get some Japanese Balance of Payment reports. Poor numbers may cause the yen to weaken.

This will be followed on Monday with notes from the BOJ's meeting. On Sunday and again on Tuesday, there are Chinese numbers. Since China is the largest trading partner of Japan, strong numbers in China can help the yen. If the USD is able to hold above the 98 handle through mid-week, a trade above the 100 level might be possible.

Trade in the euro this week probably left both the bulls and the bears frustrated. Judging from last week's COT report, the spec sentiment of the euro was friendly. Until Friday, most of the weekly movement in the euro was to the downside. The bearish NFP report caused the euro to gain a portion of this week's break back.

Among the EU reports we get next week is Industrial Production, both y/y and m/m. The first is expected to be positive 0.3 and the second a positive 0.7. Reports from Europe are generally light next week. The new COT report released this afternoon shows spec to be sellers of over 20K contracts of longs.

Yesterday we correctly anticipated the Canadian news would be better than the US. Canadian employment was up 59.2k, which might roughly compare to a US NFP of 500k. This resulted in a reduction of the unemployment rate to 7.1%. Later the Ivy PMI report improved to 51, up from 48.4 but short of guesses, 52.6. On Monday we get the Stats Canada (M/M) Building Permits. It is expected they will be down 10.3%. Canadian winters can be brutal.

The C$ was trading at around 1.05 yesterday and the numbers took the USD down to 1.04 today. Our initial target was about 1.03, but the C$ has gained so quickly, we may be conservative. We will watch the trade next week for guidance. Remember most traders are too quick to take profits, and too slow to take loses. As always manage your money.

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Source: This Week In Forex: Review And Preview