EURUSD 1 min
The FX market isn’t quite sure what to make of today’s non-farm payrolls report. The headline was soft but the wage data was hotter. The dollar initially moved lower on the headline but then rebounded. It’s since began to drift modestly lower again.
I lean towards the wage data as the more important signal for the Fed but with a July hike 88% priced in, the debate is more about a November hike or not and that meeting is a long ways away with much more data to come.
Eyes instead are focusing on next Tuesday’s CPI report and the potential for a fall below 3% inflation. The current economist consensus is 3.1% y/y, down from 4.0% in May.
The euro chart above shows the market struggling to price in what the Fed will do next. So does the bond market with 2-year yields down 6.2 bps to 4.94% and 10s up 1.5 bps to 4.05%.
For the next few weeks, I think the chart to watch will be USD/JPY as the BOJ meets on July 28 with the possibility of changes (or signals of changes) to yield curve control.
Deputy BOJ Governor Uchida pushed back today on tweaks saying:
Risk of missing chance to hit 2% inflation with premature policy
shift is bigger than being too late in tightening monetary policy
I disagree with that assessment and the market might be pushing back today as well, as the yen rallies across the board.