The USD is gearing up for some volatility as we await the non-farm payrolls print where the market is looking for around 180,000 jobs. Some of the more bullish analysts like Goldman are expecting a 200,000 print. From a trading strategy perspective, it is hard to see any bullish momentum from a positive print last long mainly because the Fed’s read on data is now obscured by the shutdown and further fiscal uncertainty.
While this NFP reading will help shape up tapering expectations, the market is partly pricing in no-tapering until the New Year and potential until the fiscal situation is concluded. Some analysts still expect December tapering but most are now in the March next year camp. I certainly don’t feel we’ll see tapering this year as it will take some blockbuster jobs reads over the next couple of months, which seems unlikely.
Yen weakness resumes
USD/JPY is back above ¥98 and currently sidelined at ¥98.20, with the yen experiencing some weakness after yesterday’s disappointing trade balance reading. BoJ Governor Kuroda was also on the wires yesterday re-emphasising the BoJ will do all it can to reach its 2% inflation target. As a result, Friday’s CPI reading for Japan will carry significant weight. Once again we’ll be looking to see if higher imported energy costs are skewing the CPI reading. While there’s been all this talk about Abenomics working, CPI ex-food and energy actually continues to decline. Regardless, a disappointing read will only see talk of further stimulus at the end of the month ramp up. USD/JPY remains in a tight range in Asia but I feel this is really just the calm before the storm, particularly as we approach the US non-farm payrolls.
Risk currencies remain sidelined
Taking a look at the risk currency space, AUD/USD continues to consolidate around 0.965, with the next significant print locally being CPI numbers (due out tomorrow). EUR/USD is quite elevated at 1.367 with no major data due out today. Over in the UK, MPC member Bean speaks and we also get public sector borrowing data. This might have some bearing on cable which continues to hold its ground above 1.61.