NFP was weak but not a game changer

Ahead of today’s jobs data we had already seen some weakness in USD, driven by suspected Japanese intervention in the USD/JPY pair. The dollar had also eased after Kevin Warsh said inflation risks had eased. But he was also happy to let incoming data drive market expectations and keep policy debate for FOMC meetings. Thus, a lot was hinging on this US jobs report for market direction. Well, as it turned out, the data was disappointing, but not a gamer changer.

 

Dollar slips as payrolls rise only by 57K

 

The June NFP reading was below consensus of +115K, at just +57K and the previous month was revised lower too. Though the unemployment rate fell to 4.2%, this was partly driven by a drop in the participation rate.  The stock market liked the data and the dollar hated it because it effectively rules out the chances of a July rate hike from the Fed – not that this was going to happen anyway with oil prices falling.

 

But was this enough of a disappointing to completely rule out rate hikes later this year? Absolutely not. One month’s worth of data will never be enough. The Fed’s focus is on inflation, meaning the jobs data should taken with a pinch of salt for any dollar bears out there.

 

Still, with oil prices going further below the pre-war levels, risk appetite should remain firm – barring further selling in the AI and chipmaker sectors.

 

More reason for Japan to intervene in FX again

 

Now that the data has come in much softer, Japanese authorities have even more reason to use the opportunity to sell more of its dollar reserves to help lower the USD/JPY exchange rate. This is especially the case given the US holiday on Friday when liquidity conditions will be a lot thinner, amplifying the impact of any intervention.

 

Looking ahead

 

US holiday on Friday means the bulk of the post NFP moves may well happen today. Next week, the latest ISM PMI and minutes of the FOMC’s June meeting will be released.

 

New Fed Chair Kevin Warsh avoided offering any clues on the likely direction of interest rates yesterday, preferring instead to reinforce the Fed’s data-dependent approach. That leaves forward-looking indicators like ISM PMI in the spotlight.

 

DXY drops to test key support

 

 

The Dollar Index (DXY) has now pulled back to re-test the old highs from March around 100.60ish area. The DXY needs to hold this area to maintain a bullish technical bias. Further support seen near 100.36 and then at 100.00. Resistance comes in around 101.05 initially, followed by 101.19 next. Bullish if we move back above 101.43 now.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R