The calendar keeps flipping and once again, the always-keenly-observed NFP release is upon us. With European traders officially holiday, it is precisely this low participation on the day, and consequently low liquidity, that creates the risk of such high volatility with this holiday release.
We are now also living in the aftermath of the March 18th FOMC meeting which sparked such frenzy, given Fed’s Yellen notably dovish comments that rate hikes would be at a slower pace but crucially, data dependant. Which brings us to today’s release and presents us with an interesting situation.
With market expectations of a June rate hike having notably receded, the bar for what is to be considered a “strong” NFP number, has too declined. Whereas the recent string of sucessively strong NFP numbers bolstered the USD bull case through their upside-suprise factor, it might be the case that merely a consensus number will be enough to see USD buying resume. USD positioning has diminshed following the recent dovish FOMC and there is plenty of scope for USD bulls to reload. Likewise, any shock to the downside will fuel a continuation of the USD unwind, but given the recent string of such strong numbers, the correction might not be all that deep.
The average figure of the last 5 NFP prints sits just atop 300k
Scenarios & Trades
- 250K – 300K
- A print this strong, once again, would fuel market expectations of a sooner than expected rate hike ad would certainly bring a June lift off, solidly back into focus. USD buying would be the only show in town once more.
- Although the JPY has had much stronger performance recently, there has been commentary increasing the risk of further BoJ intervention in the near future.
- LONG USDJPY
- 200k – 250k
With the consensus figure at 244k, a number in this band will keep the recent string of positives numbers intact and strengthen the case for USD bulls.
- The obvious choices are trading pairs showing the strongest polict divergence and with ECB QE underway, the EUR is the firm favourite.
- SHORT EURUSD
- 150k – 200k
- A miss to this extent would fuel the further unwind of USD positions and see the USD correction continue, though the magnitude may be limited.
JPY has been doing much better recently as signs of reflation in the country have emerged, with wage growth picking up and lower oil prices helping the economy too.
- SHORT USDJPY
- 150k Or Less
- A miss of this magnitue would sincerely shock markets and provoke a much deeper unwinding of USD positions as rate hike expectations are pushed much further out.
- GBP has been suffering recently as expectations of BoE easing have picked up, with weaker data showing the UK verging on deflation. The expected policy divergence would certainly diminish in the meantime, giving some respite to the batter pound.
- LONG GBPUSD
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