Will ADP Take USDJPY through 111.00?

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Market Drivers August 2, 2017
NZD labor data misses
UK PMI Constructions misses
Nikkei 0.52% Dax -0.12%
Oil $48/bbl
Gold $1267/oz.

Europe and Asia:
NZD NZ Employment
GBP PMI Construction 51.9 vs. 54.9

North America:

The FX markets were decidedly more active on the second trading day of the week as newsflow in Asia and early positioning ahead of the key ADP report in North American session created good two way moves in most of the major pairs.

The EURUSD continued its winning ways popping through the 1.1850 level in morning European dealing as flow into the unit remains very strong. Still, with the pair having now gained more than 300 pips without any significant retrace we continue to believe that it is vulnerable to some profit taking especially if US data proves supportive.

To that end the dollar, while weaker against both cable and euro, gained ground on the yen today with USDJPY coming within 10 pips of the 111.00 figure in late Asian session trade. Today’s ADP which will provide the market with its first glimpse of US labor condition is a prime catalyst for movement. The market anticipates a print of 185K versus 158K the month prior. Any number near the 200K mark will be see as dollar positive while any print below 150K could send USDJPY below the 110.00 level once again.

Elsewhere, the kiwi was weaker on the day after employment data – which is reported quarterly, not monthly – came in weaker than expected at -0.2% versus 0.7% eyed. Several analysts pointed out that the underlying data was not nearly as dire as the headline numbers, noting that Hours worked and hours paid lifted 1.0% q/q and 0.9% q/q respectively, providing a better signal for Q2 GDP growth. Still, expectations for any RBNZ tightening were pushed out all the way to 2019 and that impacted kiwi which fell to .7425 and remained there most of the night. The pair is vulnerable to further selloff especially if US data proves positive this week and US yields rise causing an outflow from the NZDUSD carry trade.

Lastly, UK Construction PMI missed badly coming in at 51.9 versus 54.5 as it moved perilously close to contraction level but the market ignored the data as traders geared up for tomorrow BoE meeting. Although the overwhelming consensus is that the BoE will stay pat, some market analysts including those from Nomura think that the central bank will surprise with 25bp hike to get ahead of inflation pressures building up in the UK economy. If that is indeed the case cable could pop to 1.3500 on such a surprise move.

Boris Schlossberg
Managing Director

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