Market Drivers June 2, 2016

USD/JPY drops through 109.00
UK PMI Construction 51.2 vs. 52.6
Nikkei -2.32% Dax 0.25%
Oil $49/bbl
Gold $1217/oz.

Europe and Asia:
AUD Trade -1.5B vs. -2.1B
AUD Retail Sales 0.2% vs. 0.3%
GBP UK PMI Construction 51.2 vs. 52.6

North America:
USD ADP 08:15
EUR ECB Presser 8:30

It been another volatile night of trade for USD/JPY in Asia session trade as the pair fell through the 109.00 figure on further risk aversion flows. The aftereffects of Prime Minister Abe’s delay in sales tax hike continued to reverberate through the markets for the second day in a row as Moody’s questioned the stability of Japan’s fiscal policy and Nikkei dropped by more than -2%.

USD/JPY is now off more than 230 points from its highs as risk aversion flows trump any prospect of US monetary tightening, although the focus is now likely to shift to this side of the Pacific as US data begins to take center stage starting today. The market will get a look at the ADP data as precursor to tomorrow’s NFP report with consensus view looking at 178K versus 156K the month prior. There is some prospect of possible downside surprise because of the Verizon strike which was resolved, but the market will likely overlook any dip unless it was more than 50K in size.

With USD/JPY having dropped so hard in the past 48 hours a lot of technical damage has been done to the pair and any positive US economic news will only push it towards the 112.00 level. Only a shockingly large report in excess of 200K jobs would shake the market from it funk and fuel a strong short covering rally.

Meanwhile the focus in North American trade will be squarely on ECB today with Mario Draghi hosting the presser at 12:30 GMT. No one expects any major policy changes out of Mr. Draghi and company but traders will focus on any possible upgrade to growth and inflation which could provide EUR/USD with a lift and push the short covering flows towards the 1.1250 level. However, given ECB’s distaste for appreciating currency, Mr. Draghi may emphasize the more negative aspects of growth in the past month and may stress that the accommodation will continue with force for quite some time.

In either case, unless there are major surprises on the policy front, this may be one the least eventful ECB meetings in recent memory and volatility in EUR/USD should remain subdued.

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