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USD pushed one way then the other on jobs data, nonfarms to follow today

Good morning

It was something of a rollercoaster ride for GBPUSD yesterday, trading up from 1.2705 to 1.2780, then down to 1.2675, then back up to 1.2740 where we currently sit. EURUSD followed a similar path although not quite as dramatic, moving from 1.0855 to 1.0900, back to 1.0835 and is now 1.0885. This was indeed a USD move, USDJPY also had decent swings, from 144.10 to 143.60, then up to 144.65 but now trades down at 143.20, helped in part by a decline in Japan equities.

What caused this? Well US Dollar was trading weaker until strong US employment numbers saw decent USD buying. ADP employment came in at a whopping +479k against an expected figure of +225k. Forecasts of nonfarm payrolls headline pushed a touch higher and talk of a soft landing for the US economy despite the high interest rates did the rounds.

The initial excitement was tempered by a weaker set of JOLTS jobs data, this is one we know the Fed are quite keen on and as it slipped below 10m a lot of the USD previous USD buying was unwound and we saw the reversals mentioned above.

Recession talk in the US does seem to be waning. I had wondered whether Fed might hold off from raising rates again later this this month but the data yesterday makes a rate rise far more likely. US equities fell back as a result, while a strong set of numbers today will enforce the idea that the US labour market is in a very good place. For the record, a headline today around +250k is expected. CITI seem to be one of the few looking for a softer headline, they see something around the +170k mark, still a strong number but would likely take the shine off the USD and also question again the tenuous relationship between ADP and nonfarms.

The move lower in USDJPY has led to the usual talk of possible intervention but I have seen no confirmation of this. Bloomberg reports that Sakakibara, the former Japan Vice FinMin known as ‘Mr Yen’ has said with US rate rises and BoJs continued easing it is possible for yen to weaken much further, perhaps to the 160 area. At that point Sakakibara thinks they may be tempted to intervene. Whether or not it gets all the way up there, this does question whether Japan have any great desire or inclination to intervene at levels below 150 for example.

We have the US employment numbers today, we also see employment data from Canada. A rate rise from Canada next Wednesday looks on the cards although for now this isn’t really reflected in CAD, with USDCAD trading up to near one month highs at 1.3380 and GBPCAD above 1.7000 for the first time since early May.

On the subject of GBP, with further rate rises expected GBP is not only holding its ground but powering ahead against other currencies. GBPEUR now up at 1.1710, GBPAUD 1.9200, GBPZAR 24.30, this is a strong move and there is some thinking GBP can continue to find support. It is lower against JPY, GBPJPY now 182.20 but this is more to do with Yen strength.

China fixed USDCNY at 7.2054, a touch lower than yesterday and well below levels that are being traded, which are still close to the 7.2500 area. Plenty of talk of China plans to prevent larger CNY depreciation, which at the moment looks likely given the high chances of further US rate rises. Lots of talk of Chinese investors moving away from Yuan into USD though, domestic confidence clearly falling in China. I’ve seen nothing so far on Yellens meeting with her Chinese counterparts.

As I started the report this morning, I typed in the date, 7th July and was reminded that on this day back in 2005 the London bombings took place on the tube and bus network. I remember missing the Aldgate explosion by an hour or two. I know this is quite a long time but in the scheme of things it did bring home how close one can be to something completely unexpected. The horrific events at the Wimbledon primary school yesterday only serves to enforce this point. For most people, most of the time, life goes on with no major drama but from time to time something does happen to an unlucky few. Worth remembering those lives lost and perhaps stop grumbling about the smaller issues that affect us all from time to time.

That’s about it from me. I’m now off for a week so there will be no daily reports although of course we are still very much open for business. I’ll have half an eye on the cricket today, England seem once again likely to throw away any advantage they may have had over the Aussies in the latest test match but there is still a long way to go. Good luck to England U21 football team as they take on Spain on Saturday in the final of the U21 Euro championship.

I’m going away wishing I had a crystal ball. I’m only gone a week but it feels a bit like we are on the edge of some decent moves in FX. Will GBPUSD be up through 1.3000 when I get back? Will USDJPY be nearer 140 or 150? Will Harry Kane have let Spurs in a hunt for trophies? Will Twitter really have sued ‘Threads’ for stealing their IP? Too many questions, not enough answers unfortunately.

Have a great week next week and I’ll be in touch in my return.

- 13.30 US nonfarm payrolls

- 13.30 CAD unemployment

- 15.00 CAD Ivey PMI

- 17.45 ECBs Lagarde speaks

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