FX Update: USD and JPY climb to the top ahead of US jobs data

Forex 5 minutes to read

John Hardy

Head of FX Strategy

Summary:  USD and JPY strength dominate here as wea await the US jobs report with little anticipation of any negative surprises after the blowout ADP survey earlier this week, though this heavily statistically manipulated survey can spring surprises on occasion. Note that the prepared remarks for the semi-annual testimony from US Fed Chair Powell will be released later today.


Trading interest

  • Short EURUSD and GBPUSD on yesterday’s breaks of important support (1.1000 and 1.3000 respectively), targeting 1.0900 for EURUSD and 1.2750 or lower for GBPUSD
  • Shorting NZDUSD for test of the sub-0.6300 lows.
  • USDMXN overdone on downside in my book – but technically need a further bounce to confirm a divergent momentum setup.

News and views
Democratic senators, including Senator Elizabeth Warren, have sent a letter to Fed Chair Powell inquiring into the Fed’s repo operations ahead of Powell’s semi-annual testimony before Congress next Tuesday and Wednesday. It makes plenty of sense for the Democrats to get curiouser and curiouser about this matter as the Fed’s massive balance sheet operations have engineered the stock market surge to all time highs and enabled President Trump’s non-stop victory dance. This could shape up to be one of the more interesting semi-annual testimonies from a Fed chair in a while, though not sure that the Dems have a deep enough understanding to ask the right questions. Note that Powell’s prepared remarks for next week’s testimony will be released later today.

Germany’s industrial production fell to a brutal -6.8% year-on-year pace in December and -3.5% month-on-month. France’s December Industrial Production number was down -3.2% year-on-year. There are no real green shoots in Europe, despite recent attempts to spin some slightly more neutral recent activity surveys as more positive. The long wait for the next policy impulse continues,  meanwhile German politics are taking an interesting turn as the state of Thuringia’s traditional mainstream parties deal with whether to keep the populist rightist AfD out in the cold.

The Russian central bank meets today to set the policy rate, with yet another rate reduction expected, which would take the rate to a new cycle low of 6.00%. Given the policy cuts already in the pipeline and the massive meltdown in crude oil prices, the ruble looks relatively stable, but the recent weakening has perhaps been sharp enough to give Governor Nabiullina pause? If not,  would expect a more cautious forward guidance – ruble at risk of further downside, and aggravated on downside if we do  see a cut. I was surprised to see the Brazilian central bank cutting rates again this week and no surprise to see the real closing at a record low yesterday. Likely plenty more downside to come there.

The Czech central bank yesterday sprang a fast one on the market, hiking rates 25 basis points to 2.25% – against expectations for no move – to defend against a steep rise in the CPI. This is the only CEE central bank noticing the increasingly negative real rates – Poland and Hungary will eventually be forced down the same road with even more negative real rates. Still, doubt whether CZK gets much upside on the move, with the economy’s heavily linkages to German industry/car production, etc.

Market expectations for today’s nonfarm payrolls are running at around +160k. Note that the bureau responsible for gathering the nonfarm payrolls data revised down the numbers for Apr 2018 through March 2019 down by some 500k, a reminder that this data series is an ongoing exercise in statistical manipulation and “birth and death model” assumptions that leave us little clue of the true state of the labour market from month-to-month. To be fair, few other data series are flashing red on the US labour market, including more reliable series like the weekly claims numbers.

Chart: EURUSD
EURUSD has finally blasted below 1.1000 and looks ready to test the sub-1.09 close in the sessions ahead. Traders should be wary of negative attention on the situation from US President Trump at any time, and we have been well trained to believe that any new lows won’t last for long from the last 18 months and more of market action, as each new low has quickly back-filled, but let’s see how this develops as the options market shows record complacency (1-month implied volatility is sub-4.0% even this morning after the break!)

Source: Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1030 – Russia Central Bank Key Rate
  • 1200 – Russian Central Bank Nabiullina Presser
  • 1200 – Mexico Jan. CPI
  • 1330 – US Jan. Change in Nonfarm Payrolls
  • 1330 – US Jan. Average Hourly Earnings
  • 1330 – US Jan. Unemployment Rate
  • 1330 – Canada Jan. Employment Numbers
  • 1500 – Canada Ivey PMI
  • 1600 – US Fed Semi-annual Report to Congress
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.