Today, all eyes will be on the US employment report for June. The forecast is for nonfarm payrolls to have risen by 179k, more than the 138k in May. The unemployment rate is expected to have remained unchanged at 4.3%, while average hourly earnings are expected to have accelerated in monthly terms.
Overall, this would be another employment report consistent with further tightening in the labor market, which will be pleasant news for FOMC policymakers. Despite agreeing on raising the Federal funds rate in June, they were split on the outlook for inflation, how it might affect the future pace of interest rates, and when they should start normalizing the Bank’s enormous balance sheet, according to the minutes of the latest gathering. Market expectations remained unaffected after the minutes’ lack of clarity with regards to the timing of the next rate increase.
Therefore, if the June jobs report is indeed as robust as expected, it could bring forth those expectations and thereby, support the dollar. Having said that though, we would stay mindful as to whether the outcome will have lasting effects as a few hours later, the Federal Reserve will release its semi-annual monetary policy report to Congress, which could also impact market pricing with regards to the next increase in borrowing costs. After the minutes from the latest Fed gathering failed to provide extra hints with regards the future path of monetary policy, investors may dig into this report looking for such hints.
XAU/USD has been trading in a short-term downtrend since the 6th of June. On the 3rd of July, the precious metal dipped below the longer-term upside support line taken from the low of the 27th of January, something that trigger steeper declines. Nevertheless, the metal’s tumble was halted once again by the 1217 (S1) zone, where we believe it settled waiting for the NFPs today. If the US jobs report comes in encouraging, the bears may take in charge again and perhaps drive the battle below the 1217 (S1) line, initially aiming for 1210 (S2). Another break below 1210 (S2) is possible to open the way for the psychological zone of 1200 (S3).
BoJ bond buying brings the yen under selling interest
Overnight, the Bank of Japan stepped in to the bond market, in order to put a lid on JGB yields after the 10 yr. yield had risen to 0.105%. The Bank bought 500bn yen of 5 to 10 JGBs, more than the 450bn in its prior operation. This is a move consistent with its yield-curve control policy, according to which the Bank aims at keeping the 10yr. yield at around 0%. The result as far as the FX market is concerned was a weakening yen.
USD/JPY spiked up during the Asian morning, breaking above the resistance now turned into support of 113.45 (S1) and clearing the longer-term downside resistance line drawn from the peak of the 11th of January. In our view, the overnight rally signals the continuation of the short-term uptrend that has been in place since the 15th of June. A decisive break above the resistance level of 113.90 (R1) is possible to open the way for our next obstacle of 114.40 (R2), marked by the peak of the 10th of May.
As for the rest of today’s events:
Global leaders gather In Hamburg, Germany, for the 12th G20 summit. The leaders of the world’s top economies will discuss terror attacks, free trade, and climate change.
As for the economic indicators, in the UK we have industrial production data for May. Expectation are for the IP to have accelerated, something that could prove positive for the pound.
At the same time we get the US employment report, we have jobs data from Canada as well. The forecast is for the unemployment rate to have held steady and for the net change in employment to have remained in positive territory. These data will be closely tracked amid recent signals from BoC policymakers that a tightening move may be on the cards soon. Another month of solid employment gains could add fuel to such speculation.
As for the speakers, BoE Governor Mark Carney speaks. Following his hawkish remarks last week, it will be interesting to see whether he continues to share the same view.
XAU/USD
Support: 1217 (S1), 1210 (S2), 1200 (S3)
Resistance: 1230 (R1), 1240 (R2), 1248 (R3)
USD/JPY
Support: 113.45 (S1), 112.90 (S2), 112.50 (S3)
Resistance: 113.90 (R1), 114.40 (R2), 114.90 (R3)
