FX Update: Well that didn’t take long.

FX Trading focus: Well that didn’t take long. US jobs report on tap.

The “goldilocks” idea I floated yesterday only lasted a matter of hours, as the relief from the natural gas price reversal in Europe only spread into crude oil prices briefly before the latter ripped back toward the cycle highs. Further capping risk sentiment was a sharp rise in US treasury yields, which rose to new local highs ahead of today’s important jobs report. The boost to US yields saw the JPY falling fast. No big surprise there, as USDJPY trades into 112.00 again and may be ready for a sprint higher into the next major chart zone toward 114.50 if we get a potent jobs report that sets yields on the path to challenge the cycle highs (for example, the 1.75% area in the US 10-year).

As noted in this morning’s Saxo Market Call podcast, I will focus closely on the average hourly earnings data in today’s report after the last several months have shown elevated readings suggesting that earnings are rising at a greater than 5% clip. Any nonfarm payrolls change reading well north of the expected 500k plus an Average Hourly Earnings reading higher than 0.4% month-on-month today without an accompanying drop in the average weekly hours could add some urgency to the Fed’s tapering decision and pace at the early November meeting. The latest FOMC minutes are up next week and should add some further color on the state of Fed thinking heading into this jobs report.

It's an important day and close to the week for the US dollar, which has faltered in places even while maintaining the EURUSD downtrend and seeing USDJPY tickling the top of the range today. USDCAD is in an entirely different place as it pushed lower toward the critical 1.2500 area on the oil price rise, AUDUSD continues to eye pivotal local resistance at 0.7300 and GBPUSD the significant resistance zone in the 1.3600-50 area. If the data is indifferent relative to expectations and yields trade sideways or lower and risk sentiment continues to recover, the US dollar could be in for a significant breakdown versus the stronger batch of currencies. A jolt higher in US yields is the more interesting test of USD sentiment however – likely supporting further upside in USDJPY but perhaps only upside against the other currencies noted above if the higher yields spook risk sentiment at the same time. I will follow up early next week.

Chart: USDJPY weekly
Further upside is the logical scenario here if we get a strong US jobs report today that drives a further boost in yields. As noted above, the next key area for USDJPY is up into the 114.50. A terrible jobs report today and sudden cratering in yields would likely be needed if the USDJPY is to be tamed within the prior range.