Global Head of Macro Strategy
Summary: The US dollar index reached 100 yesterday, only small move higher after Wednesday’s big rally, and most of the heavy lifting was done by USDJPY spiking above 150.00. The status of that rally in particular will be tested in today’s US July jobs report.
USDJPY screams higher.
It’s easy to build a fundamental story to support the ripping USDJPY rally that soared above range resistance and the 149.60 area 200-day moving average to as high as 150.92 overnight. US data was positive Wednesday and Fed Chair Powell was marginally hawkish, and the Bank of Japan revised its core CPI Forecasts sharply higher while Governor Ueda clearly indicated in the press conference that the bank plans on doing absolutely nothing about it for now, preferring to sit on its hands to see how the “hard data” shapes up after the implementation of Trump tariffs. But the coincident support for the move isn’t really there to support the price action, especially the chief vulnerability for the yen: some kind of existential pressure on the JPY from a chaotic move in long bond yields globally. It feels like this was a positioning capitulation that added a bit of energy to the move, as well as the fall of that psychological 150.00 level. So, barring a strong US jobs report today.
Tariffs
Of the G10 currencies, CAD and CHF are most impacted by yesterday’s new Trump tariff rates, with an ugly 35% for Canada (only affects non-USMCA goods, but some of these are very important for Canada, including lumber, aluminum and steel). The 39% of Switzerland is very steep, but nothing seems to affect the teflon Swiss franc.
Chart: EURUSD
This is a tough spot for the chart technician as we have cut down through key range support at 1.1557 this week and therefore well down through the prior cycle high of 1.1573, both bearish developments. But in the bigger picture this is a correction within a huge uptrend off the 1.0141 low and the local sell-off is extremely steep, so risk/reward for trading levels is poor. Resistance is now 1.1500-1.1550 and the next focus lower is perhaps 1.1200-1.1250 or maybe even 1.1184 (the major Fibo on the chart) if we work that much lower. I prefer to see how the price action develops on the back of whatever today’s jobs report to see if the bulls can make a stand – if not, we remain in a local USD uptrend until or unless a reversal develops. As noted above, the big 100.00 area in the USD index is in play here as well.
Looking ahead – surprise scenarios for NFP change today.
The US jobs report is up today and it feels like the “surprise side” would be a negative surprise in payrolls growth and the unemployment rate, given especially that the latter dropped to 4.1% in June from 4.3%. Expectations are running at about +100k after +147k last month and for a mean reversion in the unemployment rate to 4.2%. let’s call a 50k print on payrolls and some negative revisions as the cut off point for a modestly negative surprise and anything approaching 0k a quite negative surprise and below 0 a surprise that spooks the market. The kicker would be a return to the 4.3% level. I don’t mention positive surprise scenarios because the bar feels very high to raising eyebrows, given the constant negative revisions that will happen and widely reported signs of lower hiring for newly educated degree holders.
In terms of the reaction function to any surprise, I would expect USDJPY to display the most sensitivity – especially interesting in negative surprise scenarios because of the key technical Rubicons that were just crossed yesterday. The upside risk is also there on a positive surprise, if only if US treasuries can show signs of life and sell off in response. The MOVE index of US interest rate volatility just hit a three-plus year low this week.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
The USD trend has blossomed into something quite intense, with today’s US jobs report important for confirmation or perhaps partial rejection. The weak JPY is the strongest trend, probably requiring a crush in global yields and weak risk sentiment to get back on its feet.
Table: NEW FX Board Trend Scoreboard for individual pairs. All of the new trends are either USD up-trends or new attempts at EUR downtrends, and all the oldest trends are JPY downtrends. Key days for confirming or rejecting the new USD uptrends.
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