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USD/JPY Eyes 100 if NFP Proves Positive

Last updated 5/8/2009 4:42 AM ET (GMT -5) 8 Comments

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Kathy Lien

Director of Currency Research, GFT

Top Stories

• US Banks Need $74B additional capital according to stress tests
• Toyota cuts dividend presdicts 2nd consecutive annual loss
• Nikkei recovers to end up .5% Europe higher on open
• Oil at $57/bbl
• Gold at $915/oz

Overnight Eco

• JPY Monetary Policy Meeting Minutes
• AUD RBA Monetary Policy Statement still sees contraction
• CHF Unemployment Rate as expeceted 3.5%
• EUR German Trade Balance better at 11.3B vs. 8.0B forecast
• GBP PPI hotter at 0.6% vs. 0.2% eyed
• EUR German Industrial Production n/a

Event Risk on Tap

• CAD Employment Change expected at -45.3K
• CAD Unemployment Rate expected at 8.3%
• CAD Housing Starts expected at 145K
• USD Non-Farm Employment Change expected at -619K
• USD Unemployment Rate expected at 9.0%
• USD Average Hourly Earnings expected at 0.2%

Price Action

• Runs to 9950 in Europe as recation ot stress tests positive
• AUD/USD gets clipped to 7500 on profit taking and dour commnets from China
• GBP/USD recovers above 1.5000 after yesterday's surprise QE news
• EUR/USD holds 1.3400 in Europe ahead of NFP

After a brief period of concern in early Asian session, risk returned to the currency market by the start of European trade with EUR/USD recovering above the 1.3400 handle while USD/JPY traded to a high of 99.50. Profit taking  and a small bout of risk aversion hit currencies in Asia after China’s Vice Premier stated in FT today that global economic conditions are likely to deteriorate further before rebounding. That dour assessment was then followed by an announcement that Toyota would report its second consecutive annual loss and cut its dividend.

The news created a negative tone in Asian trade despite the fact that investors generally reacted positively to the release of the stress test results which showed that US banks will need an additional $74 Billion in capital, with many announcing plans to raise the funds. The Aussie was especially hard hit on the Chinese Vice Premier comments as Australia has been the primary beneficiary of China’s relentless demand for resources. Today’s RBA monetary policy statement even confirmed that its growth estimates were partly based on the strength of demand from China.

However, by the start of European trade risk revived, boosted by better than expected Trade Balance data from Germany. The EZ largest economy reported a trade balance improvement of 11.3B vs. 8.0B forecast and while the level of activity remains well below the 2008 average, this was the  second consecutive month of better than anticipated results suggesting that global demand for German exports may rebounding from its nadir in January. The EUR/USD recovered the 1.3400 handle and held it ahead of the NFPs.

The US NFP data will be the marquee event  in the North American session with markets forecasting a read -619K versus -663K last. With ADP numbers and US weekly jobless claims showing a marked improvement the expectations are certainly skewed to the bullish side, so an Inline read could be seen as a disappointment and may in fact trigger a sell off both equities and high beta currencies. According our colleague Kathy Lien, “nine out of the 10 leading indicators that we typically follow for the payrolls report points to a slower pace of job losses. There is a very good chance that non-farm payrolls could fall by less than 600k and possibly even less than 550k.”

If NFP’s do print less than -550K,  USD/JPY will likely take out the 100 level that it has been flirting with all week.  If the unemployment news is better than expected the market will likely take the news as validation that the current rally in both equities and high risk currencies is more than just a bear market bounce but rather a true signal of a rebound in US economy. If the data is bad however, volatility and risk could return with a vengeance as overextended longs will be caught flat footed.

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Comments (8)

chandra

May 08, 2009 at 10:20 AM ET

plz add daily comment report in gold silver crudeoil with chart.......
thanku

bschlossberg

May 08, 2009 at 11:40 AM ET

Chandra I cover G10 FX only but we will soon have special report on those topics

FXMT2009

May 08, 2009 at 12:05 PM ET

Your comment yesterday regarding the GBP "fake out" was excellent....you mentioned that the amount was not that big...and the gbp could rebound....thanks for that...I HELD tight and I am in the plus again....the question now is where to go from here...is the dollar done? it seems like all is good news....and the dollar is the bad child......trashed vs the CAD, NZD, AUD....and now GBP, EURO are joining the fun.....even USD/JPY is not acting in sync with the news.....but thanks for your comment yesterday, it was right on.....

klien

May 08, 2009 at 02:21 PM ET

Boris is gone for the day, so I'll chime in. Yes, we do believe that the dollar is headed lower. In my NFP Instant Insight, I talked about how post payrolls, expect the EUR/USD to hit 1.36 and now that it has, 1.3725 is the next level of resistance. We also expect more gains in all of the commodity currencies against the $

FXMT2009

May 08, 2009 at 02:50 PM ET

Ms Klein, Great, so now my trips to the EURO land will be more expensive.... Thanks for you answer, I also read your book, you should consider another one, as you have one of a kind "easy style " explaining the inner cycle of the forex market....I am serious,if you have the time, do it ....have a great weekend.

Petiepip

May 08, 2009 at 02:35 PM ET

Boris and the NFP’s did print less than -550K, when do we expect USD/JPY to test the 100 level? It went down the opposite way today, what happened?

bschlossberg

May 11, 2009 at 08:22 AM ET

Japanese exporters have adjusted for 9500 USDJPY for H@ of 2009 so whenever it rises they short and that dynamic has offset any lift from risk appetite

Nicole

May 10, 2009 at 09:22 PM ET

Oh no, how about USD/Baht ( Thailand ) ? Should I exchange all my USD to baht before it get lower ?

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.