USD/JPY holding in positive territory ahead of further US jobs data, Nonfarm Payrolls

• USD/JPY testing the key 109 handle as markets stay with the V-shaped recovery narrative. 
• US jobs market is a long way off from being COVID-19 cured, eyes on NFP.

USD/JPY has been a head-turner of late. The pair has rallied to test waters in the 109 handle while, at the same time, the DXY has dropped to the lowest levels since 9th March. 

The move can be associated with there still being plenty of demand for USD in both industry and financial transactions picking up.  Also, there is the risk that this could all come tumbling back down like a house of cards, so the dollar will store some safe-haven value still regardless of how far the stock market runs. 

• USD/CHF bearish trend gathers pace, energised on hard fundamentals

The yen has suffered a flight to the euro and Swiss franc while gold could also now be attractive at lower prices to investors seeking an alternative safe haven. After falling -1.62% in its biggest move lower in over 6 weeks yesterday, Gold has rallied over 1% today and the Swiss franc trades over 0.6% to USD at the time of writing. 

Positive data for the US ahead of NFP

Meanwhile, another positive factor for the bulls came in yesterday's ADP employment report for May. The data showed a much better-than-expected -2.760m decline (vs. -9m expected), while the extent of the job losses the prior month was also revised lower. 

Also, while today's Initial Jobless Claims was higher at 1877K vs. the 1843K estimate with a slight revision higher to the prior week, revised to 2126K from 2123K previously reported, the claims in a four-week average was in better shape. This was arriving at 2284K vs. 2608.75K last week.

However, the data comes in ahead of tomorrow's key Nonfarm Payrolls which is expected to show a further deterioration in the state of the US labour market. 

Meanwhile, other surprisingly less negative data for the US yesterday came with the ISM’s non-manufacturing index for May. This also beat estimates with a 45.4 reading (vs. 44.4 expected), though the employment component came in at just 31.8. Housing was another head-turning input considering the number of people losing jobs.

Hold those horses into NFPs

However, the longevity of this crisis is the key factor here. While the US stock market's recovery on prospects of an uninterrupted COVID-19 re-opening is impressive, investors may want to give the lenses of their rose-tinted glasses a good cleaning at this juncture.

For instance, while the jobless claims fell this week, they remain extremely elevated considering the US economy is clearly on the re-opening path. In the context of an economy that is re-opening this data is extremely high, especially when viewed against previous recessions.

The stock market has rallied as if it were a forgone conclusion that there will be no further spikes in the virus. Well, today's California news begs to differ and it seems the S&P 500 index is starting to reflect how fragile investor's conviction really is. The index is now sliding below yesterday's lows, -0.85% at the lows of the day of 3090.

A Los Angeles Times analysis shows that the number of weekly cases in California continues to rise, exceeding 17,000 last week for the first time in the pandemic. But it's not just Cali' where this is happening, California is one of about 20 states where new cases are increasing over the past five days, according to Johns Hopkins University.

When factoring in the riots, another serious spike in cases isn't too improbable based on the above information and with the recovery unlikely to be swift, the pain in the jobs market looks set to linger, something to keep in mind heading into Friday's jobs market. 

USD/JPY levels