USD/JPY: ISM services sent pair to fresh one month low, now markets await NFP

US stock markets recovered off their lows on Thursday, benefitting from the solace which investors are taking from the speculation that the Federal Reserve will have no choice but ract to the recent downturn in the global and US economy but slashing interest rates at the end o this month. The Dow Jones Industrial Average, DJIA, ended higher by 122.42 points, or 0.47%, at 26,201.04. The S&P 500 index added 23.02 points, or 0.8% to 2,910.63 while the Nasdaq Composite index climbed 87.02 points to 7,872, a gain of 1.12%. Initially, the USD/JPY pair extended losses and fell from 107.05 to 106.48 to mark a fresh one month low on the services ISM before recovering to 106.90.

The US non-manufacturing ISM was much weaker than expected, falling to 52.6 in September from 56.4 in August – the lowest reading in three years. "New orders fell to 53.7 (last: 60.3) and employment fell to 50.4 (last: 53.0). The data confirmed that weakness in manufacturing is spreading to broader sectors of the economy. Businesses cited tariffs, uncertainty, and rising costs and wages as negatives. Prices paid rose to 60.0 (last: 58.2). The data highlight the importance of making progress with China in next week’s trade talks," analysts at ANZ Bank explained. 

In Tokyo, USD/JPY has been flat with China still out and markets in wait and see mode ahead of the showdown which is going to be the Nonfarm Payrolls in the US session. Meanwhile, the US 2-year treasury yields have been suffering with a drop from 1.47% to 1.37% (lowest since Sep 2017) and the 10's fell from 1.59% to 1.51%. "Markets are pricing 20bp of easing at the 31 October meeting and a terminal rate of 0.92% (vs 1.88% currently)," analysts at Westpac pointed out.

Nonfarm payrolls coming up

The analysts at Westpac also explained that Nonfarm Payrolls are anticipated to increase by 145k, broadly in line with the six month average of +150k.

"Factors in play this month include widespread retail store closures, hiring related to the census, softness in manufacturing but implied strength in very low jobless claims data. The unemployment rate is seen to hold at 3.7% while the annual pace of average hourly earnings continues to track at 3.2%yr."

USD/JPY levels