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  • USD/JPY testing the 107 territories on renewed trade optimism.
  • Markets will get set for Fed Chair Powell who speaks and NFP.

USD/JPY was rising overnight  from  106.40 to 107.23 which was  a one-month high with a bounce in US stocks and a recovery in US data, a welcome surprise following the disappointment in the IS ISM manufacturing data. In Tokyo, USD/JPY has been offered as the pair consolidates ahead of  the key showdown tonight in the US session.  

The risk environment has improved since the Hong Kong news and trade talk headlines that surfaced yesterday at around this time, with a meeting in the card tween US and Sino negotiators early October. The Brexit can also seems as though it is being kicked down the road again, giving relief to GBP and subsequently weighing on the Yen.

As for US data, the US services ISM index easily beat  expectations in August, rising to 56.4 from 53.7. Ahead of the Nonfarm Payrolls, there was particular attention paid to the ADP private payrolls which survey showed +195k new jobs in August, smashing the expectations of +148k  and reminding the markets of the US economy’s growth potential which sent the Dollar and US yields higher. The US 2-year Treasury yields climbed  from 1.46% to 1.57% before easing back  1.53%. The 10-year yield climbed  from 1.47% to 1.56%. “Markets are pricing 28bp of easing at the 19 September Fed meeting, and a terminal rate of 0.94% (Fed funds rate currently 2.13%),” analysts at Westpac explained.  

Meanwhile, looking ahead, markets will get set for Fed Chair Powell who speaks on an “Economic Outlook and Monetary Policy” panel in Zurich, in Q&A format with no prepared text (NY afternoon). “Separately, we don’t anticipate Fed Chair Powell to deviate much from the Jackson Hole script on his Friday discussion about the economy at 12:30 ET. Powell is likely to repeat that the economy remains in a good place, and that the Fed stands prepared to act as appropriate to sustain the expansion under a context where global uncertainties have increased,” analysts at TD Securities explained.  

But the major event will come with the Nonfarm Payrolls  

Nonfarm payrolls will be the main focus, expected to trend modestly lower to 158k in August (prior 164k).  “The strong increase in services-sector employment in the August ADP report raises the odds of an upside surprise. We also note that the start of temporary census hiring for canvassing purposes could further boost the headline number. All in, the household survey should show the unemployment rate remained steady at 3.7%, while we expect wages to rise 0.2% m/m, dragging the annual print lower to 3.0% in August,” analysts at Westpac explained.  

USD/JPY levels