EURUSD & USDJPY Risk Factors

NFPs Miss, But Firm Enough To Support Fed View

Despite printing below expectations, US Job gains in August have been viewed as firm enough at 151k vs. 180k expected, in line with previous comments by Fed officials that the break-even number for US jobs growth is around 100k, to keep the Fed on track to raise rates this year, in line with comments by Fed chair Yellen who noted that she judged recent economic data as supportive of the case for a hike this year.  Accordingly, we have seen EURUSD weakness over recent sessions as some players anticipate that a September hike is likely to manifest.

With that in mind, close attention will be paid to the Fed members who are speaking this week with San Francisco Fed President Williams speaking later today on the economic outlook and Boston Fed President Rosengren speaking on Friday. Traders will be keen to hear Williams’ take on the latest jobs number and whether or not he sees it as supportive of a hike. In terms of the US data schedule this week, we have a fairly light slate with ISM Non Manufacturing the only key print. The reading has come in slightly stronger than expected over the last two months and is expected to outperform this time around also.

ISM Non Manufacturing tradingeconomics.com

ECB On Thursday

Attention this week will also be on the European Central Bank September meeting, with expectations split as to whether or not the bank will adjust their current policy framework.With Brexit risk factors appearing to be weaker than initially expected and data broadly positive, the ECB is likely to remain in “wait and see mode” for the time-being. The meeting is expected to be broadly neutral for EURUSD with some downside risk should the ECB surprise by adjusting policy at this juncture.

USDJPY Supported At 100

Over recent months USDJPY has been putting a lot of pressure on the key 100 level, testing the zone roughly three times since June. Market expectations for monetary policy divergence between Japan and the US should keep the level intact going forward with hedging on behalf of Japanese importers also adding support.

With market sentiment continuing to fluctuate between risk-on and risk-off mode there is certainly room for a rotation back down into the level. Positioning in the Japanese Yen has continued to build in recent months despite the latest policy adjustment by the BOJ and the announcement of a Government fiscal stimulus package.

The global macro landscape shows that growth remains insufficiently robust enough to support sustained risk trend, and the focus now shifts to whether the US economy, which appears to be at the end of an expansion cycle, can continue through to next year, thus keeping sentiment supported, or if it will indeed show signs of peaking sooner. Provided that US data fails to support the case for multiple rate hikes, and USDJPY rebound is likely to be capped into the 105 region.

Data Flash

Overnight the Reserve Bank of Australia kept rates on hold at record lows of 1.5% with the bank noting the continual growth in the global economy, albeit at a lower than average pace, and improved conditions in several advanced economies this year. Inflation was once again noted as being low and expected to remain so for some time whilst “In Australia, recent data suggest that overall growth is continuing, despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports.”

German factory orders for July fell much more than expected slipping -0.7% on the month against expectations of -0.2%. The final EuroZone 2Q GDP print came in as expected at 1.6% with Swiss CPI YoY in August also meeting forecasts at -0.1%. Swiss 2Q GDP, however, was shown to have outperformed at 0.6% vs. 0.4% QoQ and a strong 2% vs. 0.8% YoY.