Forex Asia Market Update

A soft payrolls report left the USD down against all the major currencies last week.

As the market reacts that the FOMC will leave rate on hold on Tuesday, and possibly for the rest of the year.

Two and 10-year Treasury yields were down by 7.5 bp and 6 bp respectively, while equity markets were flat as lower growth risks were balanced by reduced tightening risks.

Non-farm payrolls for July rose by just 113k versus consensus of 145k and up slightly from 124k in June.

A rising unemployment rate, and evidence of slower growth include in various other indicators.

We prefer to be neutral rather than short dollars ahead of the FOMC. Although we expect no further rate adjustment this year, it seems unlikely that the Fed will give us a "clear" pause this week i.e. to signal that their cycle is effectively done. In that case, it is unlikely that EURUSD will break the 1.2350-1.3000 range and we continue to target EURUSD at 1.2700 and 1.3000 over 1 and 3 months respectively.

Looking ahead to this week and unit labour costs are also due on Tuesday ahead of the FOMC decision. The trade balance is due on Wednesday and retail sales on Friday. The worst case scenario for the USD this week clearly would be a dovish Fed, a widening in the trade deficit and a disappointment in retail sales.