It’s a new month. That can only mean one thing – US Non-Farm Payroll data.
The Asian and European sessions were virtual non-events for FX although European equities were happy to nudge a little higher. That aside we are virtually unchanged from Thursday’s close. So what did we get?

This number would be affected by the GM auto strike, so estimates were marked lower. However, even with a decline of 42,000 jobs in the auto industry, the headline number still came in at +128,000 and an upward revision to last month’s number to +180,000.

The unemployment rate nudged higher to 3.6% as expected. The initial reaction was to buy USD with USDJPY jumping from 107.95 to 108.25. EURUSD goes the other way falling from 1.1155 to 1.1130. US equity futures reacted positively with the DJ jumping to +80 points. All in all a solid number.

Next up is US ISM Manufacturing PMI data for October which comes in a little weaker than expected. Time to reverse those NFP moves with USDJPY moving back to 108.00 and EURUSD back to 1.1155.

The one thing not reversing is equities which continue to push higher, the DJ +250 points and the S&P at a new record by the time Europe closes for the weekend.

The last headline of note brought more positive sentiment from trade talks between China and the US. This saw USDJPY rally back to 108.20 and EURUSD to 1.1165 and gave equity markets a final boost, the DJ moving to +301 points by the close. So a great day for equities, but the FX market was happy to spectate after a hectic week.

So a quieter day for FX than you might have expected from an NFP day. But on the chart, I did want to bring attention TO USDJPY.

This hourly chart shows us a very clear double top in place at 109.30 and we have since backed off 100+ points. Yet this has happened at a time when the S&P is making all-time highs. We all know about the ‘risk-on’ and ‘risk-off’ relationship between equities and USDJPY and JPY crosses, so is this relationship beginning to breakdown?

Or is this just some short-term divergence? Hard to tell, but it will be interesting to see if there is a complete breakdown, how long it takes the market to adjust to a relationship it has blindly accepted for over 20 years.

Definitely worth keeping an eye on over the coming weeks. For now, respect the double top in place.

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David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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