Date: 07 Jul 2017

Economists polled by Reuters expect the US nonfarm payroll figure for June, to be released at 1330BST, to show a 179,000 rise in US nonfarm payrolls (NFP) after May’s increase of 138,000. Remembering that the May number came in substantially below forecasts, traders might wonder if it is a case of hope springs eternal for those being polled. Nevertheless that’s one of the ballpark numbers by which the currency market will judge the actual figure, so it’s worth bearing in mind. That said, traders will be looking for which currency pairs will react the most given any particular outcome. Given the yield differentials, dollar bulls or those expecting a strong US NFP print might ordinarily look at USDJPY but, as already seen this week, and with the weekend approaching, traders will have noted how geopolitical tensions in north east Asia can lend themselves to sporadic episodes of yen strength. With Thursday’s Swiss June CPI data coming in at plus 0.2 percent year-on-year, well below the prior print of 0.5 percent and below the 0.3 percent rise expected by economists polled by Reuters, perhaps traders might decide that if US NFP data is strong then there might be room for USDCHF to outpace on the topside.

Dutch bank ING, writing before Thursday’s Swiss inflation data was released, was already bearish on the franc. “With the SNB massively undershooting its inflation target, we suspect the latest inflation data will result in the ultra-loose monetary policy staying in place for longer. USD/CHF upside risks to 0.9700/50,” ING wrote. On the flip side, traders might conclude that if the US jobs data disappoints then that may push back the timing of further US monetary policy tightening or Fed balance sheet reduction. In that case, traders might be drawn to euro/dollar (EURUSD) because the dollar’s external value, by definition, already encompasses market perceptions about a Fed policy that has already taken off and is in mid-air, while the European Central Bank seems to be heading towards take-off but is still taxiing along the runway. The contrast might come into sharper relief if the US NFP disappoints. Traders will all have their own opinions about what the data may signify and how the market may react but formulating a game plan ahead of time arguably makes sense.

Written by Neal Kimberley, External Currency Analyst.