USDJPY Stalls Ahead of 113.00

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Market Drivers May 4, 2017
UK data beats but cable flat
AU Trade surplus misses a bit
Nikkei holiday Dax 0.65%
Oil $47/bbl
Gold $1235/oz.

Europe and Asia:
AUD AU Trade Balance 3.11B vs. 3.33B
GBP UK PMI Services 55.8 vs. 54.5
GBP Mortgage Approvals 66.8 vs 67.4

North America:
USD Weekly jobless claims 8:30
USD Productivity 8:30
CAD Trade Balance 8:30

It’s been a very quiet night of trade in the FX market with most pairs contained to very narrow ranges but the dollar rally at the end of yesterday’s US trade came to a screeching halt as both EURUSD and GBPUSD recovered while USDJPY spend the session going nowhere.

On the economic front UK PMI Services jumped to 55.8 from 54.5 eyed creating a trifecta of upside surprises this week as every PMI report beat its forecasts. The news bodes well for Q2 GDP growth in UK whose economy continues to perform better than expected given the inflationary pressures on the consumer.

The growth in services came from new business demand and employment which continues to indicate that lower pound is having a stimulative effect on UK economy. As we have argued many times in the past, UK at the moment is enjoying the best of both world’s as the country has a markedly more competitive exchange rate while having unencumbered access to the EU market. That dynamic will not last, and given the contentiousness of negotiations the free movement of goods and services may see barriers erected sooner rather than later. Still for now UK growth looks to improve and cable traded mildly higher rising towards the 1.2900 figure.

Yesterday’s, relatively hawkish FOMC statement in which the Fed gave no indication that it would pause tightening pushed the dollar higher against all the majors in late US trade. But save for the high yielders such as Aussie and kiwi there has been little continuation of the dollar rally so far. USDJPY is encountering seller ahead of the 113.00 figure and both euro and cable have rebounded from their selloff lows.

There is no doubt that the market remains unabashedly bullish dollars, but FX traders are on hold for further confirmation from tomorrow’s NFP report. If the number prints anywhere north of 170K jobs and if wages grow at 0.2% or better the prospect of a Fed rate hike is almost assured. However, a weak NFP could truly scuttle that assumption especially given the fact that other US data has been weak. For now the rally in USDJPY continues to progress, but it may be running into much more formidable resistance at these levels.

Boris Schlossberg
Managing Director

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