EUR/USD and USD/JPY continued to reject the 1.30 and 100 level respectively despite solid U.S. jobless claims numbers that should have been positive for risk. Unfortunately, for EUR/USD, stronger U.S. data only solidified the outlook for steady monetary policy by the Federal Reserve versus the possibility of easing by the ECB next week. Of course, based on how well the euro is trading this morning it appears that concerns about a rate cut from the ECB have abated which this may have to do more with the news that Enrico Lette was named Prime Minister of Italy and tasked with the job of forming a new government.

USD/JPY should have rallied on the back of the stronger labor market report but we have seen very little reaction in the currency as weekly portfolio flow data from the Ministry of Finance continues to show Japanese investor stepping up their sale of foreign bonds. Despite the broadly held belief that Bank of Japan easing will force investors to go global, we have seen no evidence of an increase in foreign bond purchases since the April 4th decision.

Nonetheless, the weekly jobless claims report was very good. Initial claims dropped to a 6 week low of 339K, down from a prior report of 355K. Continuing claims also fell from 3.093 million to 3 million and together they indicate that U.S. companies are growing more confident and therefore laying off fewer workers. Now the question has been job growth and not job losses so the real test will be next week’s non-farm payrolls report. On balance, claims in April have been lower than claims in March and should bode well for next week’s release. Currently economists are looking for payrolls to rise from 88K to 155K, but this could change as we are still a week away from the release.

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