EUR/USD, USD/JPY Flows: Payrolls pressures $ longs, even with unemployment rate proviso
Downside payrolls surprises with revisions - although note that zero or less is now trend...
Unemployment rate dip one counterpoint, though soft earnings the deciding factor
Focus turns to inflation data, but long $ positioning hit again, USD/JPY retains downside skew
Payrolls comes in much weaker than market, though with a caveat. Latest print of -23k following a combined downward revision to Jun and May of almost 100k gives a much flatter recent trend. That said, it is worth noting the point made in the recent report (‘US Payrolls ‘breakevens’: Why zero is the new 200, see( here), that actually this is very much the current prevailing “breakeven” for the labor market given the supply side. And in that context, note the unemployment rate dips to 4.1% from 4.2%. Perhaps the deciding factor on the day nonetheless is the low earnings figure at +0.05% and ease to 3.2% vs mkt 3.5%. And that does still deliver a net dovish result that again gives the Fed breathing room, subject to the next inflation reports too with these more critical
Net result is that 2yr yields are down sharply, -7bp, and the USD with it – the market still had a very long dollar positional overhang and so vulnerable to such material downside surprises. USD/JPY right back to the low side of the 158-157 congestion and resuming the downward skew after the recent consolidation phase.