The Japanese Yen may rise while the US Dollar declines if soft employment data undermines Fed rate hike bets and weighs on risk appetite.

Talking Points:

  • Asian FX Finds Divergent Paths in Conflicting Indications of Risk Appetite
  • Japanese Yen to Rise, US Dollar to Decline if Payrolls Data Underperforms
  • See Economic Releases Directly on Your Charts with the DailyFX News App

Currency markets diverged in overnight trade. The sentiment-geared Australian and New Zealand Dollars traded alongside Asian stock exchanges, where shares followed Wall Street upward. The MSCI Asia Pacific regional benchmark equity index added 0.8 percent. Meanwhile, the Yen opted to follow more forward-looking risk appetite cues emanating from S&P 500 futures. Contracts on the US stocks yardstick declined, seemingly fueling safety-linked demand for the Japanese unit.

Looking ahead, traders are likely to dismiss a European calendar peppered with second-tier releases to focus on December’s US Employmentreport. The data set is due to show the economy added 240,000 jobs last month, marking a slowdown from the 321,000 increase posted in November. Leading survey data reinforces the probability of a downturn, pointing to significant slowdown in hiring growth in the services sector (which accounts for close to 80 percent of US employment).

Furthermore, US economic news-flow has deteriorated relative to expectations over recent weeks, suggesting analysts are overestimating the economy’s vigor and opening the door for a downside surprise. Such an outcome may push back Federal Reserve interest rate hike expectations, weighing on the US Dollar. It may likewise undermine risk appetite as traders fret that softening US performance will fall short of offsetting malaise in Europe and Asia, fueling further Yen gains.

Critical Levels
CCY Supp 3 Supp 2 Supp 1 Pivot Point Res 1 Res 2 Res 3
EURUSD 1.1610 1.1704 1.1749 1.1805 1.1798 1.1843 1.1892
GBPUSD 1.4915 1.4998 1.5044 1.5093 1.5081 1.5127 1.5164