background image

Two-way risks for JPY magnified over US jobs report

Forex 5 minutes to read
Picture of John Hardy
John J. Hardy

Global Head of Macro Strategy

Summary:  A positive shift in sentiment in Asia overnight boosted JPY crosses across the board ahead of the December US jobs report, where the market is perhaps most sensitive to positive surprises, given very negative sentiment as the year gets under way.


US equities suffered a weak session yesterday on the Apple sales warning and that market cap giant dropped some 10% on the session. As well, much was made about the US ISM Manufacturing registering its largest drop in a decade in December, with ISM reporting that some manufacturers may be held back by concerns that the next round of US-China tariffs will hurt business.

But let’s recall another likely source of the slowdown: weak oil prices. A large percentage of US manufacturing activity is linked to the oil patch and oil prices crossed below important support starting in early November, sliding some 40% from top to bottom. Back in December 2014 the ISM Manufacturing survey dropped over two points to 54.7 and for several months afterward, as oil prices were in a freefall that arguably started in October of that year, slid all the way to well below 50 by early 2016.

The low coincided with the very month the oil price was bottoming out below 30 dollars per barrel. More indicative of a US slowdown would be a weak ISM Non-manufacturing survey, which represents the dominant services sectors of the US economy and over the last quarter has registered an unprecedented three months in a row above 60. A bit too early to price in a Fed reversal, in other words, which the market is increasingly doing as the odds of a rate cut from the Fed by December of this year have risen to almost 50/50 odds.

Calming nerves somewhat overnight, Japan managed to cut a significant portion of session losses as of this writing and the Caixin Dec. Services PMI registered a positive surprise, while Hong Kong stocks brushed off the negative mood and rallied strongly from new local lows. 

Looking ahead to today’s US jobs report, the risks point to upside surprises triggering the most volatility as sentiment is very much in the dumps to start the year – perhaps excessively so. Yesterday’s very strong ADP payrolls growth (+274k) may or may not be indicative of today’s official nonfarm payrolls release, and today’s average hourly earnings will be far less important than the release for January, as 22 US states will hike their minimum wage as of January 1. After two months at the cycle high at 3.1% year-on-year, today’s print is expected at +0.3% month-on-month and +3.0% year-on-year.

Chart: USDJPY

Charts have been ripped apart by the JPY flash crash, but conditions have quickly calmed here and the market may be more sensitive to positive news than negative news at this point. Even if USDJPY is headed lower, an upside US data surprise and solid sell-off in US treasuries after the recent brutal rally could drive plenty of upside before a new sell-off sets in. This isn’t to call the direction, but rather to point out the tactical two-sided risks. First pivot area is the overnight highs near 108.50 and then perhaps the weekly Ichimoku cloud areas around 109.50-110.00 and ultimately the 40-week moving average higher still. The next major chart area lower is the 105.00 area.
usdjpy
Source: Saxo Bank
The G-10 rundown

USD: again, we have so rapidly transitioned to pricing in Fed rate cuts – is the market getting ahead of itself in the near term on shifting the goalposts?

EUR: market finds the euro uninspiring when risk appetite resumes and not a credible safe haven when risk deleveraging picks up. Brexit contributing to downside risks. In short, the single currency stuck in a rut until we vault over 1.1500 or below 1.1250-00 in EURUSD.

JPY: likely to remain the most volatile currency on swings in risk appetite. Watch out for USDJPY upside risks if the mood changes for a few session on US treasuries. If not, the 105.00 level in USDJPY is the important downside chart point.

GBP: Can’t see May’s deal passing – but beyond that, total lack of clarity on what comes next keeping EURGBP gyrating around 0.9000.

CHF – brightening mood overnight boosts EURCHF gently – suspect that the weak beta to risk appetite continues until we get Brexit developments and further out, other EU existential developments.

AUD – AUDUSD bulling back up above 0.7000 as the mood in China has brightened and China refuses to budge on the CNY. AUD bears will want AUDUSD to commit back below 0.7000 by the end of today to keep the bearish momentum intact, otherwise reversal risk.

CAD – USDCAD consolidating sharply head of both US and Canadian jobs data today. But the Bank of Canada won’t move on rates next week after its most recent dovish shift. The key support area for USDCAD bulls coming into view around 1.3400.

NZD – long term value in AUDNZD, but AUD crosses likely more sensitive to China news, so tough to position for this.

SEK – EURSEK has failed to commit lower – needs a further improvement in risk appetite and EU growth sentiment to do so. And despite firm short Swedish yields, concerned that Sweden one of the worst at-risk economies to an unwind of its housing bubble.

NOK – firmer oil prices and improved sentiment out of Asia helping EURNOK progress lower towards the pivotal 9.75-80 area.

Today's Economic Calendar Highlights (all times GMT)

0815-0900 Eurozone Dec. Final Services PMI
0855 - Germany Dec. Unemployment Change and Rate
0930 - UK Nov. Mortgage Approvals
0930 - UK Dec. Services PMI
1000 - Eurozone Dec. CPI
1000 - Norway Dec. House Price Report
1330 - Canada Dec. Unemployment Rate / Net Change in Employment
1330 - US Dec. Unemployment Rate
1330 - US Dec. Change in Nonfarm Payrolls
1330 - US Dec. Average Hourly Earnings
1515 - Interview with US Fed Chairman Powell, former Fed Chairs Yellen and Bernanke.

Quarterly Outlook

01 /

  • Investor Outlook: Beyond American shores – why diversification is your strongest ally

    Quarterly Outlook

    Investor Outlook: Beyond American shores – why diversification is your strongest ally

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity

    Quarterly Outlook

    Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity

    John J. Hardy

    Global Head of Macro Strategy

    After the chaos of Q2, the quarter ahead should get a bit more clarity on how Trump 2.0 is impacting...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

Disclaimer

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.


Hong Kong

Contact Saxo

Select region

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

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo 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.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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