Risk correlated trades look shaky in the Asian session, as USD powered ahead against all other G10 currencies. It was clearly Friday's non-farm payrolls print, which prompted dollar gains, as markets extrapolated this figure into a world of a less ultra loose Fed and brought forward the expectations of rate hikes. In November, payrolls fell just 11k compared with a consensus forecast decline of 125k, and October's payrolls were revised up to -111k. However critically, the politically key unemployment rate fell to 10.0% from 10.2%. Given the divergence reaction to the better than expected NFP, the dollar-risk correlation seems to be weakened, yet not nearly broken. The EURUSD pierced range support at 1.4800 and GBPUSD collapsed to 1.6350. Asian equity markets closed mixed and Gold continued to fall. Today’s light economic should keep markets guessing, but Bernanke’s testimony might provided some guidance into the Fed view on the positive trend in US labor markets.
Last week, Switzerland’s CPI came in at 0% y/y vs. -0.8% prior. So far, it has been the fear of deflation which has kept the SNB from intervening into the FX markets. So with the positive inflation data it does remove the SNBs rational for physical intervention. However, complete removal of policy would lead to EURCHF weakening, so we expect the SNB to re affirm it commitment to a weak CHF until after the Dec. 12th ECB final 12m repo.
With the USDJPY rallying off the 84.85 lows, the MoF should be less vocal of JPY strength for now. This week, JPY traders will be focused on the supplementary budget anticipated to be decided today, specifically what it would mean for additional JGB issuance. Markets are speculating for the new budget size at JPY 7.1trn but further spending would significantly damage trader faith in JPY. Credit agencies threatened to review Japans rating should there be a significant increase in JGB issuances. The MoF Friday announcement that 2y, 5y, and 30y points on the curve are under consideration for issuances.
G10 Advancers and Decliners vs USD