This Week's Five Highlights
• The main event still to come with the Verizon strike likely to muddy the waters on NFP
• Draghi manages to get through the ECB press conference with little drama
• Japan finally confirms the sales tax hike is off ... for two and a half years
• Another OPEC meeting comes to nothing; the clock continues to count down to the UK's EU referendum
Japan saw much of the interest early in the week, USD/JPY having pushed higher on the talk of a delay to the sales tax hike, but when that was finally confirmed we saw USD/JPY head back down again in something of a classic sell-the-fact reaction. It initially held above the 109.00 level deemed acceptable last week by FinMin Aso in the wake of the G7 meeting, but pushed lower to 108.50 on Thursday as EUR/JPY finally managed to crack the three-year low at 121.45.
That left US employment data and the ECB policy meeting and press conference as the notional highlights of the week, though the latter failed to deliver anything new and - despite some lively price action among the algo and day traders through the presser - an earlier push at the top end of what we see as a 1.1055/1.1215 range for EUR/USD failed to get very far and never really looked like being repeated.
The usual run in to Friday's US employment report saw a late start due to the Memorial Day holiday, though in the event both the ADP private payroll report and weekly initial claims data were bang on consensus. Futures have been pricing the timing of the next Fed move beyond June and now looks a contest between July and September, though that could change after NFP (or possibly more significantly on a higher average hourly earnings number), or after Yellen's speech in Philadelphia on Monday.
The UK saw some better than expected PMI data (though construction spoiled the party), but the focus remains squarely on the EU referendum where the odds against a vote to leave have narrowed again over the week. Cable has been finding some demand around 1.44 and below, but it's hard to remain wedded to a GBP position just now.
The ECB's was not the only big meeting in Vienna, OPEC also getting together and surprising no one in failing to reach any agreement on production levels. It's hard not to notice that crude prices only reliably fall at the moment when the cartel is meeting! USD/CAD has spent much of the week close to 1.3100 where there was a god amount of option interest on Wednesday and Thursday. The NZD has had the better of things Down Under, AUD/NZD on the 1.05 handle after AUD/USD reversed from a test of .7300 (the AUD slipping despite upbeat GDP data), the NZD getting a modest lift from the GDT dairy auction that saw the index up.
It has been a fairly quiet week both in Scandinavia and Switzerland. The Swiss manufacturing PMI saw another step up which was a surprise after a very strong April, while we heard more comments from Riksbank members on not wanting the SEK to strengthen too quickly, though another stronger than expected Ind Prod release suggests that there is no reason for it to weaken.
Still to come:
The main event is the US employment report. We expect a headline non-farm payroll gain of 155k in May, down from 160k in April but possibly weighed by the 35-40k Verizon strikers. We expect the unemployment rate to fall back to 4.9% from 5.0%, with average hourly earnings to remain subdued at an on trend 0.2%.
The US will also see the April trade deficit (4CAST USD41bn), April factory orders (+2.2% mainly on transport and petroleum), and May's ISM non-manufacturing (56.5 from 55.7). Fed doves Evans and Brainard are due to speak either side of the employment report, only the latter a voter.
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