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  • USD/JPY is drifting higher as we hade over to the NFP later today.
  • Risk appetite was seeping through the latter part of this week, can it hold up?

USD/JPY is showing signs of resilience in Tokyo, extending the early Asian gains in the 106 handle ahead of today’s Nonfarm Payrolls showdown which follows the Reserve Bank of Australia’s SoMP. At the time of writing, USD/JPY is trading at 106.40 having climbed form a low of 106.22 and hitting a corrective high of 106.45. 

Risk appetite was in full force overnight, with both European and US equities rallying on positive sentiment surrounding nations easing their lockdown measures despite the risks of a second COVID-1 wave of new cases and subsequent rising death tolls. Regardless, US yields fell, with the 2-year tumbling to a record-low and weighing on the greenback, sinking USD/JPY to a low of 106.22 following a spell of underperformance in the yen. 

  • Wall Street Close: Benchmarks close off their highs, all positive ahead of NFP

NFP in focus

Also, markets seemed to shrug off a surge in jobless claims. The claims will no doubt be reflected in a plunge in payrolls today along with a sharp rise in the unemployment rate.

 

What should also be taken into consideration by markets is that there will be measurement challenges which will potentially lead to the full degree of weakening being understated in the jobs data. Nonetheless, it is expected that we will see a collapse of greater than 20 million due to the exploding weekly jobless claims data. 

“Measurement issues will likely be most apparent with the unemployment rate, with many job losers dropping out of the labour force because they have not been searching actively for a new job (TD: 15%),” analysts at TD Securities argued, adding:

  • Our -25mn forecast for payrolls allows for some undercounting of weakness in the establishment survey data as well, with some firms not responding to the BLS because they have shut down,”
  • Average hourly earnings were probably boosted by mix shifts, with relatively more weakening in payrolls in low-wage than in high-wage jobs. We expect the 12-month change to surge to 4.1% from 3.1%, but the acceleration should be discounted; it will not reflect fundamental strengthening.

Ris off themes to prevail

Meanwhile, risk appetite is on tenterhooks as we progress through the various themes of negative headlines, including the escalation of trade wars between the US and China. The yen is a favourite currency at times of financial market shocks and there could be more in store as we progress over the coming weeks. More on that here: AUD/JPY heading into the eye of the perfect storm

USD/JPY levels