FX market outlook

FX market outlook

Posted on Friday, July 7 2017 at 8:30 am GMT+0000
Yen falls on BoJ bond purchases; dollar gains ahead of jobs report

During the Asian trading session, the yen fell against the dollar amid the latest Bank of Japan bond intervention. This helped the greenback reverse its losses against the yen following yesterday’s disappointing set of data out of the US. The focus of the day will be on the key jobs report to be released later in the day by the US Labor Department.

The yen weakened against its major counterparts after the BoJ announced it was ready to purchase an unlimited amount of Japanese government bonds in a move aimed at capping a rise in yields. Dollar/yen rose to half a percent to its highest level since mid-May during the Asian trading session. The pair was last trading at 113.71. Euro/yen rose to its highest level in 17-months, reaching an intra-day high of 129.91.

The dollar index, a broad measure of the greenback’s strength, rose 0.11%, retracing some of yesterday’s weakness, last trading at 95.91 as the Asian session was coming to a close.

Investors are eyeing the US nonfarm payrolls report for June, to be released later in the day. A weak reading could confirm investors’ concerns about a potential change in the Federal Reserve’s current thinking about further monetary policy tightening. Economists are expecting US employers to have added 179 thousand jobs last month, above May’s gain of 138K. At the same time, unemployment is forecasted to remain at 4.3% and average earnings to increase 0.3% month-on-month.

The euro has been under pressure against the dollar, falling to $1.1415 towards the end of the Asian session. An upbeat German industrial production figure provided some support to the euro, though it was short-lived. Production rose 1.2% in May, month-on-month, well above the expected 0.3% and the prior month’s 0.7% gain, potentially signalling a strong second quarter.

Sterling also weakened against the dollar, after two days of gains, last trading at $1.2953 ahead of the European session. A surprise in May’s industrial production in the UK could lead to significant moves in pound/dollar when it gets released at 8:30 GMT. Economists are expecting a gain of 0.5% month-on-month, up from April’s 0.2%.

Oil prices continued to be under pressure for the third consecutive day. West Texas Intermediate tumbled 1.3% to $44.94 a barrel, while Brent crude fell 1.1%, to last trade at $47.6 a barrel.

Gold slipped to 1,221.85 an ounce. The precious metal has not managed to recover following its plunge on Monday, making this week’s loss its worst performance since early May.

Traders could also focus on a two-day G20 summit in Germany that starts today for clues about the economic policy of the world’s major economies.