Market Drivers June 3, 2016

USD/JPY tests 108.50 but rebounds
UK PMI Services beats
Nikkei 0.48% Dax 0.54%
Oil $49/bbl
Gold $1213/oz.

Europe and Asia:
EUR Retail Sales 0.0% vs. 0.2%
EUR PMI Composite 53.1 vs. 52.9
GBP UK PMI Services 53.5 vs. 52.3

North America:
USD NFPs 08:30
CAD Trade 8:30

It’s been a typically sedate pre-NFP session with USD/JPY being the only exception as the pair dropped to test support at 108.50 in midday Asian session but managed to recover above the 109.00 figure by morning European dealing.

In eco news the data from EZ was mixed with final composite PMI coming in slightly better at 53.1 versus 52.9 eyed but Retail Sales were flat this month showing consumer demand remains tepid. In yesterday’s ECB meeting Mario Draghi stressed the fact that accomodative policy could last much longer than expected as path towards normalization could be much slower than the consensus view.

Although Mr. Draghi made a rather dovish presentation, he offered no new policy initiatives and euro weakened only slightly in the aftermath of his remarks. Today’s NFP data could push it lower if the news proves positive, but for now it is content to hold above the 1.1100 figure.

Lastly in UK the PMI Services beat the mark printing at 53.5 vs. 52.3 new business fell to its lowest level since 2012 and the overall PMI data suggests that UK GDP in Q2 will slow to 0.2%. Cable was unfazed by the news trading at 1.4425 as focus is US data later today.

With respect to the NFPs this is likely to be 100th consecutive month of positive job growth in US although the data could be volatile due to the Verizon strike this month. The key focus of the market however, will on wages rather than jobs. The consensus view is that average weekly earnings will grow at 0.2% which will be in line with recent trend growth and will continue to show a positive 2.5% yeary path in wages. However, if the number beats the consensus view it should help boost the buck which has been under heavy selling pressure all week. Markets remain skeptical of any possible Fed hike but a jump in wage growth would be just the data point that Fed needs to move ahead with its normalization process and odds of June or July hike should rise markedly if this was to occur with USD/JPY likely popping back towards the 110.00 level while EUR/USD could drift all the way to 1.1000.

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