USD/JPY: Yen Steady At 107, Markets Eye NFP Report
USD/JPY is showing limited movement on Friday, continuing the trend which marked the Thursday session. The pair is trading at the 107 line in the European session. There are no Japanese schedules on the calendar. In the US, there are three key employment indicators on the schedule – Average Weekly Earnings, Nonfarm Payrolls and the unemployment rate.
The Japanese yen continues to trade at high levels. USD/JPY dipped to 105.55 earlier this week, marking the pair’s lowest level since October 2014. The yen surged last week, following the Bank of Japan’s surprise decision not to adopt further easing measures to kick-start the weak economy. Japanese growth has been stunted by weak consumer spending and soft global demand for Japanese exports. The BoJ has cut interest rates into negative territory, but this has not lifted weak inflation levels. Meanwhile, Japanese officials have come out strongly against “currency manipulations”, as the yen moves towards the symbolic 100 level. The tough talk has raised fears that a global currency war could be underway. This week, China lowered the value of the yuan and the RBA surprised the markets with a rate cut, sending the Aussie tumbling more than 2% against the US dollar.
The US labor market has looked excellent in 2016, but this week’s employment numbers have raised concerns with weak numbers. Unemployment Claims jumped to 274 thousand, marking the third straight week that the indicator has risen. This reading was higher than the forecast of 261 thousand, and marked a five-week high. This release comes on the heels of ADP Nonfarm Payrolls, which dropped sharply in April to 156 thousand. This was the weakest reading in over two years, and surprised the markets, which have grown accustomed to releases above the 200-thousand level.
We’ll get a look at the all-important Nonfarm Payrolls on Friday. If the NFP report misses expectations, the US dollar could respond with losses. The employment picture has been a bright spot in the US economy, but consumer pending and wage growth have failed to keep pace. Last week, UoM Consumer Sentiment dipped to 89.0 points short of the estimate of 90.3 points. This also marked the fourth straight drop for the key indicator. Consumer spending is a key engine of economic activity, and softer numbers in the first quarter were an important reason that US GDP weakened in the first quarter, with a lukewarm reading of 0.5%.
What does the Federal Reserve have planned for the rest of 2016? In the April policy statement, the Fed didn’t raise rates, but the message to the markets with regard to the US economy was one of cautious optimism. The statement noted continuing improvement in the labor market but added that it was keeping a watchful eye on low inflation levels. Fed policymakers are projecting two or even rate hikes in 2016, and have left the door open to a June hike. With the US releasing key employment numbers on Friday, the markets will be listening closely to the reaction of Fed policymakers, looking for clues regarding the next rate hike.
Friday (May 6)
- 8:30 US Average Hourly Earnings. Estimate 0.3%
- 8:30 US Nonfarm Employment Change. Estimate 203K
- 8:30 US Unemployment Rate. Estimate 5.0%
- 19:00 US Consumer Credit. Estimate 161B
*Key releases are highlighted in bold
*All release times are EDT
USD/JPY for Friday, May 6, 2016
USD/JPY May 6 at 6:25 EDT
Open: 107.36 Low: 106.87 High: 107.41 Close: 107.01
- USD/JPY has posted small losses in the Asian and European sessions.
- There is resistance at 107.57
- 106.19 is providing support
- Current range: 106.19 to 107.57
Further levels in both directions:
- Below: 106.19, 105.18, 104.12 and 103.09
- Above: 107.57, 108.37 and 109.87
OANDA’s Open Positions Ratio
USD/JPY ratio has shown movement towards short positions on Friday. Long positions command a strong majority (67%). This is indicative of strong trader bias towards USD/JPY moving to higher ground.