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FX Markets Brace for NFPs

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Top Stories

  • UK PMI Services slightly weaker at 53.8 vs. 54.1
  • EZ Final PMI bit better at 56.0 vs. 55.4
  • Nikkei off -0.66% Europe up 0.22%
  • Oil at $100/bbl
  • Gold at $1533/oz

Overnight Eco

  • AUD AIG Services Index 49.9 vs. 51.5
  • NZD Building Consents m/m-1.6% vs. 2.0%
  • EUR Final Services PMI 56 vs. 55.4
  • GBP Services PMI 53.8 vs. 54.4

Event Risk on Tap

  • USD Non-Farm Employment Change expected at 194K
  • USD Unemployment Rate expected at 9.0%
  • USD Average Hourly Earnings m/m expected at 0.2%
  • USD ISM Non-Manufacturing PMI expected at 53.7

Price Action

  • USD/JPY drifts to 80.50 as investors brace for weak NFP
  • AUD/USD comes off 1.0700 highs ahead of data
  • GBP/USD pushed to 1.6300 post slightly weaker UK PMI Services
  • EUR/USD rallies back to 1.4500 ahead of NFP

Currencies remained in their typical tight ranges in pre NFP trade today as all eyes in the FX market will turn to the US employment report due at 12:30 GMT. Volatility could also spike if the Troika of agencies working on the Greek bailout proposal issues a statement at 13:00 GMT. Meanwhile the greenback was slightly lower against the yen with USD/JPY drifting to 80.50 barrier as traders braced themselves for a weaker NFP print.

Over the past several days expectations of NFP results have steadily declined towards the 160K level from 200K initially anticipated as a series of US economic reports, including a very weak ADP reading, disappointed the market. Unfortunately the best forecaster of the NFPs - the employment subcomponent of the ISM services report- will not be released until after the NFP, creating greater uncertainty in the market. Nevertheless, the preliminary data suggests that there are more reasons to believe that the NFPs will surprise to the downside rather than the upside given the fact that weekly jobless claims, ISM Manufacturing and ADP all point to slowdown in job growth.

With markets already mentally prepared for a weaker number, a print of 150K or better may actually be viewed with a sign of relief and the downward impact on the dollar in that case is likely to be minimal. However, if the NFPs prove to be as anemic as the ADP data suggests printing at 50K or less, the selloff in USD/JPY and USD/CHF could be significant with the former likely dropping through the key 80.00 barrier.

Meanwhile in overnight trade the only report of note was the UK PMI Services release which printed slightly worse than forecast at 53.8 versus 54.1 eyed. The reading was slightly lower than the 54.3 result the month prior. The relatively mild decline was attributed in part to the extra public holidays in May and weaker consumer spending.

One troubling sign in the report was the drop in new business readings which fell steeply to 55.1 form 56.3 in April suggesting that UK economic recovery may continue to struggle in the summer months. The weighted average of the three PMI readings indicates that UK GDP will expand at a very lackluster 0.3% rate in Q2, but will nevertheless avoid the specter of a double dip recession.

Cable drifted lower in the aftermath of the release breaking below the 1.6300 barrier as today's news validated BoE's impulse to remain stationary. For the time being, the UK economy appears to be too fragile for the possible shock of an interest rate hike and cable is likely to underperform for the rest of the day as markets temper their expectations of a UK rate hike in the foreseeable future. @import url(/css/cuteeditor.css);

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Non-Farm Employment Change 194K 244K
USD 12:30 8:30 Unemployment Rate 9.0% 9.0%
USD 12:30 8:30 Average Hourly Earnings m/m 0.2% 0.1%
USD 14:00 10:00 ISM Non-Manufacturing PMI 53.7 52.8

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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