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Nonfarm Payrolls were +1.8 million in July, above the +1.5 million consensus while Unemployment fell to 10.2% from 11.1%. In short, not as strong as in May and June, but stronger than expected nonetheless. Economists at TD Securities think that USD shorts were covered ahead of this report and a better data print now leaves the USD bid as tenuous. They see attractive risk/reward to lean short USD/JPY.

Key quotes

“Payrolls were +1.8mn in July, above the +1.5mn consensus; we had forecast +0.5mn. June is still +4.8mn and May still +2.7mn. Within payrolls in July, government was +0.3mn, with strength likely exaggerated by seasonal adjustment issues, but private payrolls rose a sizable 1.5mn (consensus: 1.2mn, TD: 0.0mn). The unemployment rate fell to 10.2% from 11.1%, below the 10.6% consensus (TD: 11.1%). The household survey employment measure rose 1.4mn, while the participation rate fell 0.1pt.”

“We think the market was covering USD shorts ahead of this data out of caution over downside potential. Since this downside did not materialize, we think the USD’s bid now looks tenuous. EUR/USD’s pivot around 1.1820 is tactically significant, but unless 1.1720 supports fail to hold, we think dip buyers will be content to re-engage in topside again.”

“We think USD/JPY downside looks attractive in the wake of further breakdowns in stimulus talks and as a hedge to downside in risk assets. We also find much cleaner positioning in the yen than other G10 currencies at the moment. With USD/JPY rejecting the move above 106 this week, we think the pair is setting itself up for another retest towards the 104.20 level observed recently in the weeks ahead.”