Tea Leaves Point to +200K Jobs Report

Taper talk restarted on upbeat US economic data and optimism about non-farm payrolls. The US dollar was easily the best performer while the yen languished. A light calendar in Asia leaves room for consolidation in the hours ahead.

On Wednesday it was an upbeat ADP report, today it was Initial jobless claims falling to the lowest since 2007 and the ISM manufacturing employment index jumping to the highest in a year. The combination, along with a very strong ISM overall, sent USD/JPY through 99.50 to a one-week high.

The strong numbers also led traders to re-adjust expectations for non-farm payrolls. The consensus remains 185K but whispers about a number at 210K more accurately reflected market expectations. One caveat we hold is that the Fed wasn't particularly upbeat about jobs and officials likely had a preview of the data.

In any case, initial jobless claims often give a better picture of the trend in US employment rather than the revision-heavy NFP report.

Coming into the session, the market was focused on Draghi's press conference, speculative about new dovish leanings but he didn't deliver. All the main points of policy were unchanged, including forward guidance, a balanced view of inflation and downside risks to growth. One overlooked statement was the assessment of credit, which Draghi indicated would improve on cyclical factors. This diminishes the risks of another LTRO to stimulate lending.

EUR/USD was slightly lower after the press conference but that reflects broad US dollar strength rather than dovishness. On the crosses, the euro was a solid performer.

Most dollar trades ended Thursday at the extremes of the day but some consolidation is likely in order as traders square up ahead of NFP. The calendar features Australian Q2 PPI at 0130 GMT; the prior reading was 1.6% y/y. A rate cut from the RBA next week is almost fully priced in and a high reading on inflation pressures could cause a re-think.