US Non Farm Payrolls print above 250K will push EUR/USD towards yearly lows

The Day So Far

Due to the US Bank Holiday tomorrow this month’s Non-Farm Payrolls release is being brought forward to today, leading to a fairly typical pre-NFP range-bound day so far. For once, Greece is set to take a backseat as investors turn their focus momentarily on the US labour market. However, on the Greek front, it is worth noting the comments from Dijsselbloem and Merkel yesterday, standing firm on their intention to wait until after the outcome of the Greek referendum on Sunday before re-entering negotiations with the Greeks. Early indications are that the ‘no’ vote is slightly ahead, although markets are unlikely to speculate on the outcome ahead of the vote, caution is the watchword in Europe for the time being. Given that both sides look to have set their respective positions out, it is highly unlikely we’ll see a deal this week, unless the Greek Government completely cave in if the polls indicate an overwhelming ‘yes’ vote in the upcoming referendum.

Markets have been largely drifting higher this morning ahead of the major risk events, both later today and at the weekend. Crude has been consolidating today around the $57 handle after the sharp falls seen in the wake of yesterday’s DoE inventory data.

The Afternoon View

June’s NFP release comes at a time when several markets are sitting at a crucial juncture. Those regularly reading the strategy will know that we’ve been calling for dollar strength to re-assert itself in Q3 with just 55 trading days to go until the Federal Reserve is expected to announce a first rate hike since the financial crisis. US macro data has been steadily improving after the weakness seen in Q1 and yesterday’s ADP employment report provided further evidence of that, 237k beating expectations of 218k. If today’s NFP number is another 250k+ then there is scope for the euro to finally break the double-top of 1.1050 in March/April and head down towards the yearly lows and potentially lower. Likewise, crude has been stuck in a similar two month trading range, between $62-$57, and although we could see a bounce today, we maintain our short bias. T notes we are also bearish, with a strong number likely to re-ignite fears over the rate hike as markets begin to price in a rate hike in September. A weak number, providing it isn’t below 200k, and we’ll probably see dollar weakness and a bounce off these key supports in euro and crude, but it shouldn’t materially alter the intentions of the Fed. We are cautious equities ahead of the weekend.