USD/JPY to 100.00 Despite Better NFPs?

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Market Drivers July 8, 2016

Markets wait for NFP
Asakawa warns on spec moves in yen
Nikkei -1.11% Dax 0.53%
Oil $45/bbl
Gold $1357/oz.

Europe and Asia:
EUR GE CA 17.5B vs. 24.6B
EUR FR IP 0.5% vs. 0.8%
GBP UK Trade -9.8B vs. -10.7B

North America:
USD NFP 8:30
CAD Labor Data 8:30

It’s been a typically quiet pre-NFP night with most of the majors tracing out very narrow ranges as markets await the marquee release of the week.

On the eco front the calendar in both Asia and Europe has been relatively light with only UK Trade data and German Current Account reports on the docket. UK Trade was slightly better coming in at -9.8B versus -10.7B eyed. The data did not reflect the recent GBP depreciation and may in fact improve in Q3 as exports will likely get a boost and imports will no doubt decline.

Cable however showed no reaction the news and remains near the 1.2900 figure after yesterday’s short covering rally to 1.3000 failed to hold once again. Cable is likely to remain in its 1.2800-1.3000 range until the market gets some clarity on UK political situation and most the economic data will be roundly ignored for the time being.

Meanwhile USD/JPY continues to drift lower and is now only 60 points away from the psychologically important 100.00 level. The pair has been sliding despite generally upbeat US economic data and it is not at all clear if today’s NFP report will change the dynamic.

The market anticipates that NFPs will print at 180K versus only 38K the month prior. Given the improvement in employment component of ISM Services and the ADP report, chances are good that NFPs should rebound. The end of the Verizon strike alone will be responsible for a net 70K swing in the positive direction. But with sentiment towards USD/JPY so skewed to the downside the pair may very well pop on any upside surprise only to give up its gains as the day proceeds especially if stocks turn negative. The only unambiguously dollar bullish sign would be a strong rise in average weekly earnings which could prompt the Fed to reconsider its inflation expectations.

However, a report within the forecast range may not reverse the current FX flows and USD/JPY could test the 100.00 level despite the rebound in jobs as shorts press their advantage.

Boris Schlossberg
Managing Director

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