FX Daily Strategy: Asia, Aug 7
U.S. July Non-Farm Payrolls Stronger than June
Canada August Employment Another positive month
USD/JPY Directionless With Looming Intervention Threat
We expect July’s non-farm payroll to rise by 120k overall and by 110k in the private sector, a significant improvement from June’s respective gains of 57k and 49k but largely explained by a recovery in leisure and hospitality. We expect unemployment to rise to 4.3% from 4.2%, reversing a June decline, and an in line with trend 0.3% rise in average hourly earnings.
June’s outcome was a significant slowing from the three preceding months but this was explained largely by a 61k decline in leisure and hospitality, particularly surprising to those who had expected the World Cup to lift the sector. Tough seasonal adjustments may provide some explanation. We expect a modest rebound in July, by 25k. We expect private payrolls excluding leisure and hospitality to rise by 85k, down from 110k in June.
We expect Canadian employment to increase by 20k in July, a third straight gain, similar to June’s 18.2k though well below May’s 87.8k which was correcting preceding weakness. We expect unemployment to match June’s 6.5% but before rounding to fall to 6.451% from 6.498%. The economy appears to have returned to growth in Q2 and is likely to have started Q3 with some momentum, though this is threatened going forward by fresh US tariffs.
June’s employment detail was mixed, but with weakness in goods, correcting from a strong May, and strength in services, despite a correction lower in the public sector after a rise in May. In July we expect goods to decline by 5k, fully in other goods, with manufacturing and construction flat. All three would be in line with their three month averages. June saw services up by 61.8k, led by wholesale and retail at 16.4k and accommodation and food services at 14.7k, both potentially supported by the World Cup. We expect these two components to both decline by 5k in July with the remainder of services slightly firmer than June at 35k, with 5k of that from a bounce in the public sector.
USD/JPY is consolidaiting recent drop but left directionless. With the threat of looming joint intervention, it is hard to see a strong and sustained rally. But it does not mean JPY will be gaining as support from the BoJ remains soft.
On the chart, there is little change as prices extend consolidation within the 157.00/158.00 area. Would take break above 158.00 congestion and previous channel support to open up room for stronger bounce to resistance at the 159.00/159.45 congestion and January high. Intraday and daily studies are unwinding oversold readings but corrective bounce is expected to give way to renewed selling pressure later to retest support at the 157.00/156.00 congestion area. Break here will expose the 155.23 low to retest and see room for extension to 154.85 Fibonacci level and 154.00 congestion.