USDJPY jumps to new highs on positive US payrolls

The overnight BoJ minutes on the risk of a Japanese recession and an upbeat US employment report saw USDJPY probing new 6-month highs today. But focus will quickly shift to the US election next Tuesday.

Risk appetite soared on the US jobs report and the JPY sold off rather sharply as bonds also took a dive- - though that dive reached its maximum extent just a few minutes (so far) after the employment report was published. The reaction may be more about the market trying to game the results of the US presidential election next Tuesday than it is about a strong belief in the US recovery. For whatever reason, the market seems to be dreading a Romney presidency, though as I have argued before, an Obama presidency could mean a tougher time with the US fiscal cliff, as he might have far more incentive to fight for his point of view if he is re-elected to a second term than if Romney were to win, where a decision might merely be delayed.

US Employment report
The US employment report was generally stronger than expected, with payroll growth of 171k vs. 125k officially expected (though the market was leaning higher) and the unemployment rate rose to 7.9% as expected. That latter development was due to the fact that the participation rate rose +0.2%, outweighing the +400k gain in the household survey and thus seeing the unemployment rate tick up.

Other data today
Today also saw a spate of other data points, including a horrific 43.5 Spanish PMI number and slightly less bad Italy PMI at 45.5 as expected and a tiny upward revision to 45.4 from 45.3 for the October Euro Zone PMI. Canada was out with a somewhat downbeat employment report, but this didn’t stop USDCAD from falling as the risk appetite/oil angle remains more important, and it wasn’t a big surprise anyway coming after a blowout positive September payrolls number.

Looking ahead
We’re just about three US market sessions away from the first exit poll results from the US elections beginning to roll in – it is interesting to see EURUSD attempting to break the formation here before the election result is known, though the 200-day moving average in the 1.2835 area and the previous flat-line lows around the same level and down to 1.2800 are still in place and represent the final breakout levels to the downside.

I doubt the equity market/risk appetite has much to build a rally on here and could quickly find a ceiling – suggesting that the likes of the NZDUSD is merely in throwback rally mode and USDCAD will soon find support above the key 0.9885 support area. Look for bonds to make a comeback as a confirmation that this is the case (note several minutes later – this seems to be reversing…), which in turn would also mean a possible cap on USDJPY soon and for the other JPY crosses to remain range-bound. As for AUDUSD trying back higher after the US data on the surge in risk appetite – do note that gold moved back below 1700/oz. on today’s positive employment report. Look out for the Monday data releases out of Australia as well (Trade Balance and Retail Sales, as well as Services Industry survey).

However, if risk appetite does manage to keep up a head of steam, it is likely that USD progress higher will be slowed and the commodity currency rally persists a while longer, though it could still see USD moving higher versus the JPY and against the Euro and GBP, just a bit more slowly than otherwise would be the case. Again, it would seem that we have to see next Wednesday before we get any dramatic extensions in the action either way.
Have a wonderful weekend and stay careful out there.

Economic Data Highlights

• Australia Q3 Producer Price Index out at +0.6% QoQ and +1.1% YoY vs. +1.0%/+1.6% expected, respectively and vs. +1.1% YoY in Q2
• Spain Oct. Manufacturing PMI out at 43.5 vs. 44.1 exp. and 44.5 in Sep.
• Norway Oct. Unemployment Rate out at 2.3% as expected and vs. 2.4% in Sep.
• Euro Zone Oct. Final Manufacturing PMI revised higher to 45.4 vs. 45.3 preliminary estimate and vs. 46.1 in Sep.
• UK Oct. Construction PMI out at 50.9 vs. 49.0 expected and 49.5 in Sep.
• Canada Oct. Unemployment Rate steady at 7.4% as expected
• Canada Net Change in Employment out at +1.8k vs. +10k expected and vs. +52.1k in Sep.
• US Oct. Change in Nonfarm Payrolls out at 171k vs. 125k expected and 148k in Sep. (revised up from 114k)
• US Oct. Unemployment Rate out at 7.9% as expected and vs. 7.8% in Sep.
• US Oct. Average Hourly Earnings out at 0.0% MoM and +1.6% YoY vs. +0.2%/1.7% expected and vs. +1.9% YoY in Sep.
• US Oct. Average Weekly Hours out at 34.4 vs. 34.5 expected and 34.4 in Sep.
• US Sep. Factory Orders out at +4.8% MoM vs. +4.6% expected and -5.1% in Aug.

Upcoming Economic Calendar Highlights (all times GMT)

• US Fed’s Williams to Speak on the US Economy (1825)
• China Oct. Non-manufacturing PMI (Sat 0100)
• Australia Oct. AiG Performance of Services Industries (Sun 2230)
• Australia Sep. Trade Balance (Mon 0030)
• Australia Sep. Retail Sales (Mon 0030)
• China Oct. HSBC Services PMI (Mon 0145)