Mid-Day Report: Yen and Dollar Higher after NFP Disappoints, Muted Reactions to ECB

Yen and, to a lesser extent, dollar are generally higher in early US session on risk aversion following the release of worse than expected Non-Farm Payroll report from US. The report showed deeper than expected -467K contraction of the job market in Jun, versus consensus of -375K. Though, prior month's data was revised up from -345k to -322k. The figure in Jun was indeed quite close to ADP number of -467k released yesterday. Unemployment rate, on the other hand, climbed less than expected to 9.5% in Jun. Higher yielders are generally lower as futures point to lower open in US stocks. Commodities are also pressured, in particular with Crude oil falling back to below 68 level again.

Dollar index was supported above 79.19 support again and rebounds strongly. There is no change in the view that price actions from 81.47 are merely consolidation to rise from 78.33. Focus now turns to whether the index can take out 80.41 resistance level. Break there will serve as an alert that such consolidation has completed and will bring retest of 81.47 resistance first and then rally resumption to next key resistance at 82.63. (38.2% retracement of 89.62 to 78.93 at 82.64).

ECB left rates unchanged at 1.00% as widely expected. In the press conference, ECB Trichet said that the current rates and policies are "appropriate" and remained optimistic that recovery will happen around mid 2010. Trichet did acknowledged that HICP turned negative in June but downplayed the significance, saying that it's inline with ECB's projections. Markets generally have little reactions to ECB. Released earlier, Eurozone unemployment rose to 10 year high of 9.5% in May. PPI unexpectedly dropped -0.2% mom in May, -5.8% yoy.

BoE Crude Conditions Survey showed that banks and institutions increased lending to corporate sector modestly in Q2. Further easing in credit availability are generally expected for the next three months. For the first time since Sep 07, net balance of lending reported an increase in secured lending to households and is expectation to increase further in Q3. UK PMI construction disappointed and dropped from 45.9 to 44.5 in Jun.

Swiss Franc is sharply lower today, in particular against Euro on SNB comments. Board member Jordan said that the bank will continue interventions on ad-hoc basis. Jordan clearly expressed that SNB don't want "an appreciation of the franc." There is not a "particular level, but we decide according to the situation in order to have a big effect."

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 96.22; (P) 96.60; (R1) 97.03; More.

USD/JPY's break of 96.16 minor support indicates that an intraday top is at least formed at 96.96 and flips intraday bias back to the downside. Near term focus remains on 94.87 support. As long as this support holds, we'd still prefer the case that fall from 98.87, which is treated as the fifth leg in triangle consolidation has completed already. Above 96.96 will bring rally resumption to have a test of 98.87 resistance first. However, note that break of 94.87 will delay the bullish view and bring another low, probably into support zone of 93.84/94.44, before bottoming.

In the bigger picture, price actions from 99.67 are treated as consolidation in the larger up trend from 87.12 only, in form of triangle pattern. Fall from 98.87 is viewed as the final leg of such consolidation and should be contained above 93.84 support to conclude the consolidation. Break of 98.87 will be an important signal that whole rally from 87.12 is resuming and break of 101.43 will path the way to next key level at 110.65. However, note that a break below 93.58/84 support zone will invalidate the bullish case. Instead, it will revive the bearish case that USD/JPY has completed a head and shoulder top (ls: 99.67, h: 101.43, rs: 98.87) and will in turn indicate that whole down trend from 124.43 is still in progress.

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