View from the dealing floor. Tarik Chebib works on IG’s dealing floor in London. Visit: https://www.ig.com/uk for more information.
It is remarkable how one economic figure can move a currency pair this much. USD/JPY has seen a significant correction since the release of a shockingly low non-farm payroll (NFP) number at 74,000 last Friday.
Prior to the announcement, the dollar enjoyed strength compared to other currencies indicating that the market expected a better than expected NFP release around the 200,000 mark– something everyone had got used to seeing in recent months.
However, the clear gap between the expected number and reality has shaken this currency. Since the high of 105.30, the market has lost around 230 pips before finding some support around 103.00.
The pressing question now is whether market sentiment will shift in favour of the yen and entertain a further bearish move downwards. This could be due to a growing concern among market participants that the taper may have started too early and that the Fed may have to reverse its policy change.
Nevertheless, the past NFP readings have all been very positive and a possible positive correction of this month’s number at the next release could lead to a reversal and continuation of the bullish market sentiment. There is still a lot of confusion among analysts why this month’s NFP number was indeed so low.
Look to this week, another factor which has to be taken into consideration is the reporting season in the US. This could also have an impact on the US dollar if any surprises are revealed. Furthermore, Ben Bernanke is due to speak later this week. Market volatility is to be expected around this time.
The Asian session over night was fairly quiet, however, in the wake of the European session the pair has regained some strength and climbed all the way to 103.70 before retreating to 103.50. Retail sales figures are published later today possibly giving the pair renewed strength if the reading is better than expected.
To conclude, although the market has reacted strongly after the release of the NFP number, it is premature to assume that this will be enough to really change market sentiment and start a bearish trend.
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