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Solid NFPs + relaxation between the US and China = USD/JPY above 107?

September 06, 2019 10:30

Source: Economic Events September 6, 2019 - Admiral Markets' Forex Calendar

As we go into the weekly close, all eyes will be on the US employment situation, the Non-Farm Payrolls.

After last Tuesday, where the ISM Manufacturing PMI in the US fell to 49.1 in August 2019 from 51.2 in July (and missed market expectations of 51.1 while pointing to the first month of contraction in the manufacturing sector since January 2016 as new orders and particularly employment declining), amid concerns about a further escalation in US-Chinese trade conflict, the outlook for today's NFPs is not very promising.

What's particularly interesting now is that on Thursday, headlines made rounds that US and Chinese envoys will meet in early October for more talks aimed at ending the tariff war that threatens global economic growth. With stabilising 10-year US yields, the USD/JPY went for an attack of the region around 106.80/107.00 and seems to go for a try to sustainably recapture it.

That said, our take is: any NFP print which comes in better than expected will likely see USD/JPY bulls push significantly back above 107.00 into the weekly close, taking on further bullish momentum and a stint up to 108.50/109.00 being an option, especially if speculation of a favourable trade deal between the US and China for both sides start to manifest over the next days and weeks.

On the other hand: any disappointing NFP print and/or new "Twitter escalation" from US president Trump such as "Sure, we aim at a favourable deal – for the US! China will pay!" could dampen the hopes and speculation that the US and China will agree on a deal, meaning that yesterday's push above 107 was a fake out.

A sharper drop below 105.80 could trigger here a wave of further selling and quickly activate the region around 105.00 again:

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between June 7, 2018 to September 5, 2019). Accessed: September 5, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the USD/JPY increased by 13.7%, in 2015, it increased by 0.5%, in 2016, it fell by 2.8%, in 2017, it fell by 3.6%, in 2018, it fell by 2.7%, meaning that after five years, it was up by 4.1%.

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