Strong July NFPs Could See USD/JPY Break ¥100.00 on way to ¥102.36
ASIA/EUROPE FOREX NEWS WRAP
The US Dollar has a big day lined up for it, should a few key data break its way around the start of New York trading. With 12 events on the DailyFX Economic Calendar designated as “medium” or “high” importance, the excessive event risk promises an exciting end to what has been a disappointing week.
Expectations for big moves out of the majors were high coming into this week, given the supersaturated calendar. But after disappointments out of China (doomsdayers were looking for a contraction in PMI Manufacturing, but it never materialized), Europe (the Bank of England didn’t detail its forward guidance while the European Central Bank was decisively neutral), and even the United States (the Federal Reserve’s policy meeting barely amounted to a blip on the radar), there may be a great deal of pent-up tension among traders headed into Friday’s US jobs report for July.
Data out of the United States has been strong, and weekly jobs figures have trended in the direction of sustained growth above +185K, the current consensus forecast for July. Although earnings data has been weak outside of the financial sector, companies likely still feel positive about the labor picture considering that consumption trends remain bolstered as US stocks tick to fresh all-time highs.
While a print above +200K is very possible, the Unemployment Rate should be eyed to see if it dips below 7.5%; only a drop in the Unemployment Rate coinciding with a steady or improved Participation Rate will be strongly US Dollar-positive.
Taking a look at European credit, peripheral bonds remain supported after the ECB’s promise to keep rates low for “an extended period of time.” The Italian 2-year note yield has decreased to 1.499% (-2.1-bps) while the Spanish 2-year note yield has decreased to 1.847% (-0.5-bps). On the contrary, the Italian 10-year note yield has increased to 4.363% (+0.7-bps) while the Spanish 10-year note yield has increased to 4.614% (+1.1-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 09:40 GMT
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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TECHNICAL ANALYSIS – CHART OF THE DAY
USDJPY – Potential for a Bull Flag dating back to early-July is gathering pace as the pair tests the topside range of the governing descending channel. Accordingly, a catalyst (NFPs) is necessary to see the recent downside congestion broken. Fortunately, we have that today; so a reaction, either bullish or bearish, should be expected against resistance at ¥100.00 surrounding the data release.
The 61.8% Fibonacci extension off of the June 13 low to July 8 high, with the extension drawn to the July 31 low, comes in at 102.36, an area where resistance was found as the pair tried and failed to retake the yearly high of 103.73. As such, should NFPs beat current estimates (+185K, Unemployment Rate to 7.5% from 7.6%), a break of 100.00 should begin a larger up move to 102.36, 103.73, and 105.32 (100% extension).
--- Written by Christopher Vecchio, Currency Analyst
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