FX Daily Strategy: Asia, July 1st

We expect a 125k increase in June’s ADP estimate for private sector employment, which matches our forecast for private sector non-farm payrolls in June. It is also consistent with a 30.75k four week average for the ADP weekly report in the weeks to June 6, the week before monthly data was surveyed. With ADP’s report having increased by 122k in May while private payrolls increased by 120k this would be a second straight month of consistency, though a longer term history shows that consistency is far from guaranteed. We expect overall non-farm payrolls including government to increase by 115k in June, as government corrects an increase that lifted overall payrolls to 172k in May.

We expect an unchanged June ISM manufacturing index of 54.0, sustaining a May bounce from April’s 52.7 to reach the highest level since May 2022. Strong business investment remains supportive. Signals from other surveys are mixed. The S and P manufacturing PMI accelerated still further in June, but the Richmond Fed and Empire State surveys lost momentum while the Philly Fed’s, while improved from a weak May, remained off recent highs.

USD/JPY will be closely watched as the recent consolidation seems to be broken. We do not see an imminent intervention but any sustained and strong rally for another figure or two within the week, could trigger the BoJ to act swiftly. It remain a strong belief that the pace is more important than a figure. However, element of surprise is also a key factor for intervention and could see Japanese officials act out of character.

On the chart, the break of the small ascending triangle through the 162.00 level see prices extending bullish gains from the 155.00 May swing low and the broader underlying bull trend from the 2011 low. Higher will see room for extension towards 163.00/164.00 congestion area and high of December 1986. Meanwhile, support remains at the 161.00/160.72 area which should underpin. Would take break here to ease the upside pressure and open up room for deeper corrective pullback to support at 160.00/159.53 area.