NFP (Non-Farm Payrolls) week is here and usually this means market will spend a lot of time in consolidation until Friday when the actual number is going to be released. Even though the Brexit echoes are still affecting currency pairs, this jobs data in the United States is really important.
The reason for that is the fact that the previous release in June was really a disappointing one and now everyone wonders if the July number will be in the same direction or June was only a mistake. There is a risk-off feeling in market when you look at the direction of the US dollar and the JPY, as they are both bid and probably will stay that way all the way into the NFP number.
That being said, it is very possible that the NFP trading to be related to the risk-off environment and not necessarily with the actual number so it may be that in case the NFP beats expectations, the first move is a fake one.
EURUSD is really bid after the UK’s vote and it jumped from 1.09 to almost 1.12 today as the 1.1180 area has been touched. If you think of the fact that before the vote it was trading around 1.13-1.14, then the fact that it has been able to retrace that much puts a different perspective on the future price action.
GBPUSD is the main loser so far as it has been hit by Carney’s comments that Bank of England is preparing for cutting the rates. Carney knows very well that in order to be able to fund that enormous current account deficit UK has, GBP needs to be lower, actually much lower.
Because of that, I would say that part of the EURUSD rally has been fueled by flows out of the GBPUSD and into the EURGBP and therefore the pair was supported on dips.
The real move in the US dollar I am suspecting to come next week and not this one, but the danger is that the USDJPY is going to travel earlier, and to end up in the same note like started, the NFP is key.