FX Focuses on NFPs

Market Drivers May 4, 2018
EZ Final PMI slips
FX focused on NFPs
Nikkei -0.16% Dax 0.25%
Oil $68/bbl
Gold $1309/oz.
Bitcoin $9744

Europe and Asia:
EUR Final PMI 55.1 vs. 55.2
EUR EZ Retail Sales 0.8% vs. 1.9%

North America:
USD NFP 08:30

It’s been a typically quiet pre-NFP night in FX land with majors contained to very narrow ranges as traders focus on the marquee event of the week.

US Non-Farm payrolls are expected to print at around 192K with average hourly earnings rising at modest 0.2% rate. Pre-event data has been inconclusive with ADP recording a healthy 200K reading but the employment subcomponent of ISM Non-Manufacturing – always a good gauge of job growth – showing a drop of 3 points from the month prior. Last month’s data saw a big miss at only 103K jobs, so if the market does not see upward revisions and a second consecutive monthly miss positive dollar sentiment could sour quickly.

As always, wages will be the much greater focus and if that data point could show a beat then it will likely offset any negative news on the job front. Forecasts, however, are muted and a rise of 0.2% or less will not shift the market expectations regarding wage-price inflation.

Ahead of the report USDJPY remains contained at the 109.00 figure after yesterday’s fail to break out above the key 110.00 level. The 108.00-110.00 corridor remains critical to the pair. A break above 110.00 would cement the dollar rally and likely force a wave of short covering as the pair would open a new leg in its uptrend. A woeful number, however, could push the pair below the key 108.00 support and destroy the technical foundation for the recent rally.

Any dollar weakness may not necessarily translate into euro and cable strength as both pairs are being hit by risk aversion flows. Indeed, a weak US NFP print could trigger risk aversion selloff across the board as capital markets begin to price in the uncomfortable possibility that global growth may have peaked and that we are now in synchronized slowdown across the G-11 universe.