FX Analysis – Yields and Dollar drop ahead of NFP , AUD and NZD outperform, JPY traders watching the 150 level

The USD sell off continued Thursday moving in lockstep with yields again ahead of today’s key non-farm payroll figure.  Unemployment claims came inline and had a limited impact as it was yields driving action in the USD. DXY dropped to close at the lows of 106.32 from earlier highs of 106.86. So far this looks like a technical pullback from overbought levels, with a strong support at the lower trendline around 106.10 as traders turn to watch todays NFP figure.

EUR was propped up once again by USD weakness, with EURUSD testing the key support at 1.05 several times before rallying to hit a high of 1.0558. ECB members de Guindos and Kazimir spoke, with the former saying the current level of rates will help tame inflation, but noted the ECB is data dependent and it is premature to discuss rate cuts. While Kazimir noted that the September EZ core inflation confirmed ECB expectations, and reiterated he believes the last rate hike was the final one.

JPY firmed against the USD with USDJPY dropping below 149.00 led by the softening of US Treasury yields. Traders seemingly still wary of a push above 150.00 seeing potential Yen intervention following the “flash crash” on Tuesday when the pair poked above this level.

AUD and NZD were bid with outperformance in both currencies, bolstered by the improved risk sentiment and lower US yields. AUDUSD rose above 0.6350 and NZDUSD rose above 0.5950, the Kiwi marginally outperforming the Aussie seeing the AUDNZD cross rate drop below 1.07 again, the pair has found some short-term resistance at the 1.07 level this week with cross make a few attempts to break and hold but so far being rejected.

Today’s calendar is dominated by the always exciting NFP, a hot figure here will test the markets pricing of interest rates and should see the yield/USD rally recommence.