FX Update: You say want a USD resolution? FX Update: You say want a USD resolution? FX Update: You say want a USD resolution?

FX Update: You say want a USD resolution?

John Hardy

Head of FX Strategy

Summary:  The US dollar has broken higher in places ahead of today’s August US jobs report, but key USD pairs remain rangebound ahead of today’s report, with US treasury yields applying the pressure for a broadening break higher in the greenback if they continue higher today. USDJPY is the high-beta trade to US yield direction, given that it has already ripped above 140.00 ahead of today’s US data.

FX Trading focus: Looking for USD resolution

Yesterday’s strong US data saw an interesting reaction in the US treasury market, as the long end of the yield curve rose far more than the short end. The August ISM Manufacturing survey and its internals perhaps provide a microcosm of the reasons for this: a somewhat stronger headline reading of 52.8, with New Orders rising into expansion at 51.3 and the Employment component rising smartly to 54.2, while Prices Paid eased sharply to a new 2-year low at 52.5. In short: data is solid, keeping the Fed on the currently expected pace of further tightening as taming inflation readings don’t require a re-upping of anticipation, while the longer end rises on the possibility that the US economy may have more legs than was previously anticipated. The other interesting data point yesterday was a new 9-week low in the initial jobless claims, at 232k, and a -6k revision to the prior week’s data point. This improvement in the best high-frequency measure of the US labor market suggests at least that the market isn’t deteriorating over the last couple of months.

In reaction to the fresh sharp rise in longer US treasury yields, USDJPY jumped to new highs for the cycle and followed through well clear of 140.00, a 24-year high. If today’s US jobs data takes long yields sharply higher still, look out below for the Japanese yen. It will take extraordinary further pressure for the BoJ to consider a policy pivot. As for the MoF wagging its finger in disapproval at the market, please….

Now, on where to focus over today’s mix of US labor market data points, I would watch three things.

Nonfarm payrolls: a miss relative to expectations of approximately +300k may not be as impactful as one might think, given that something in the 100-200k range, for example, could simply be read as some mean reversion from the very strong +528k July number and especially now that we have some more offsetting data on the strong side (weekly claims, recent JOLTS survey suggesting near record openings, even if was for July, etc.). Badly sub 100k may be needed with ugly data from the household survey to sustain a negative USD reaction.

Unemployment Rate: More important than the unemployment rate itself is whether the Household Survey used to calculate the rate is strong or weak. The headline from the household survey changes suggests that the labor market has stagnated since March. Any big surprises here are worth noting. The official unemployment rate dropping to 3.5% in July to match the modern record low, by the way, only came as a result of the participation rate dropping to new local lows, down some 0.3% from the March peak, while the overall labor force has also shrunk this year from the peak. What gives? I really don’t know, but there may some demographic drivers of a lower participation rate for a few more years – rising cohort of aging boomers leaving the work force (highest rate of live births in 20th century was late 1950’s to early 1960’s). Working against that is a smaller upcoming Gen Z.

Average Hourly Earnings: we have seen some very strong rises in the Atlanta Fed’s median wages survey, which has surged in almost vertical fashion from mid-last year, rising above 4% YoY in September and posting the highest levels in the approximately 25-year history of the survey at 6.7% in June and July. The Average Hourly Earnings survey has been so volatile due to the pandemic stimulus, which has settled in 5-5.50% range this year and generally dipping from the 5.6% peak earlier this year. This survey has gone so quiet that a notable surprise (that doesn’t come from a shift in the weekly hours worked average used in its calculation) might raise eyebrows – not holding my breath.

Today sees us entering the 11th consecutive day of the EURUSD trading between 0.9900 and 1.0100 – surely it’s time for a resolution? For trend followers, that would be to the downside, with 0.9500 the next likely target if we do resolve lower. Some suspense over the weekend for the euro as we wait for whether Putin restarts flows through the Nord Stream 1 pipeline tomorrow. Remember that the US has a three-day weekend ahead (Labor Day).

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
JPY weakening picking up a bit here and could get aggravated on a further rise in US treasury yields. On that note, interesting to see whether the CNH gets pulled in the yen’s direction next week. Elsewhere, the status of the Euro resurgence will be tested next week by developments in the energy market and the Thursday ECB meeting.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
The USD has followed through higher versus the struggling GBP and now JPY, but we still await resolution in USDCAD, AUDUSD and EURUSD, as noted above.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1230 – US Aug. Nonfarm Payrolls Change
  • 1230 – US Aug. Average Hourly Earnings
  • 1230 – US Aug. Unemployment Rate
  • 1400 – US Jul. Factory Orders

The Saxo 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 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 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 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 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 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)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

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); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 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.