Market Drivers July 3, 2019
EU data beats
UK data teeters on contraction
Nikkei-0.53% Dax 0.64%
UST 10Y 1.94%
Oil $56/bbl
Gold $1423/oz.

Europe and Asia:
EUR EZ Final PMI 52.2 vs. 52.1
GBP UK PMI Services 50.2 vs. 51.0

North America:
USD ADP 8:15
USD ISM Service 10:00

The relentless push lower in US yields weighed on USDJPY in Asian and early European trade today sending the pair to a test of the 107.50 level, but it stabilized ahead of the New York open along with rates markets as focused turned to US data.

With US economic calendar broken up by July 4th holiday tomorrow, the market will be all eyes on the ADP and ISM Services due later today. Although Friday’s NFPs will be the marquee event of the week, today’s releases will give a good glimpse at the state of labor demand and services activity in the US.

Credit markets have been very bearish in their assessment of US growth with the 10Y yield slipping below the psychologically important 2% level yesterday to hit a low of 1.94% today. Therefore, the conditions are ripe for a short squeeze in rates if US data proves to be relatively resilient. The markets are looking for a rebound to 140K in ADP from 27K previous which could temper the dramatic rate cut expectations currently priced in.

On the other hand, the second month of sub-par job creation would only reinforce the shorts position that the US economy is headed for a serious slowdown and could send USDJPY back to 107.00 by day’s end.

Still, market sentiment is very heavily skewed to the risk-off side at the moment, so any relief on the data front could send short scurrying ahead of the holiday.