US Macro

US Macro

Due to the July 4th holiday last week, the June US Non-farm Payroll Data (NFP) will be released at 8:30 NY Time today. For FX investors, the delay was probably a good thing since the market has now had another five trading sessions to rebuild its technical indicators which were stretched to extremes during the fallout of the June 23rd UK “Brexit” vote.

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However, looking back to last month’s surprisingly weak 38,000 new jobs posted on the May headline report, A solid rebound in June, combined with a positive revision, could push the major FX pairs back into the “Brexit” price ranges……..with the exception of USD/JPY.

Most economists and forecasters expect a strong recovery in in the overall NFP report with headline growth estimated between 160k and 180K. These estimates are supported by a sharp rise in the employment component of the ISM Non-Manufacturing Index (from 49.7 to 52.7) and weekly jobless claims at a four-month low. And while last month’s ADP private employment report didn’t give any indication of the horrible headline data, yesterday’s print of 172k outpaced last month’s posting of 168k.

With such a firm outlook for some “payback” from last month’s employment weakness, we expected to see the USD trading higher against the JPY. Instead, the pair has dropped for the last five sessions in a row and at 100.30 is over 450 points below the 30 day moving average at 105.00. It’s widely accepted that the strong JPY is a source of pain for Japanese industry; especially in light of the recent Chinese Yuan devaluation. In addition, the Nikkei 225 Index is down over 20% this year while most other G-7 bourses are within range of yearly highs.

The Bank of Japan meets at the end of the month and are under growing pressure to stimulate the economy further. Knowing that easing rates further into negative territory will have a limited impact on the economy (and perhaps a negative effect on USD/JPY), we wouldn’t be surprised to see a combination of policy levers announced including both monetary and fiscal measures.

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