A typically quiet pre-NFP night in the currency markets with most of the majors range bound ahead of the US employment number. The one exception the rule is the yen which continues to be battered by carry trade sales. The sharp jump in US yields and new record high in the EURJPY weighed on the currency all night long. The demand from retail Japanese investors for higher yields has spawned a new issuance of foreign currency trusts which according to Bloomberg could reach 11.4 Billion dollars this month. These types of moves are far more emblematic of a top rather than the bottom as peak retail demand is almost universally wrong. We continue to believe that 125.00 represents very serious resistance to the pair, but if US economic data produces a sharp upward surprise its is probable that USDJPY will try to test that level.

The NFP is of course the most difficult of economic releases to handicap especially because of the BLS birth/death model. The picture is further complicated by divergent data ahead of the event, with Hudson and Monster survey slipping but ADP pointing to an upward surprise. From a long term perspective however, the key level of employment growth appears to be centered at 100K monthly jobs. While that is hardly a blistering pace of economic expansion, that level will prevent any talk of Fed easing for the rest of the year and therefore should serve as somewhat of a support for the greenback. Only if the job picture begins to materially deteriorate into the latter half of this year by consistently slipping below the 100K figure will the pressure on US monetary officials to ease begin to truly escalate.

With ECB clearly mindful of the appreciation in the euro and therefore reticent to signal more than one rate hike for the rest of the year, the EURUSD may have reached a near term top. With US rates still at 125bp premium to EZ rates, the euro may have gotten a bit ahead of itself as speculators are forced to temper their expectations of the ECB rate hike cycle. Nevertheless, the euro rally has been driven by a variety of factors besides rate hikes, including reserve diversification and relative growth strength and should US data prove disappointing today the EURUSD could stage an assault on all time highs.

Boris Schlossberg is a Senior Currency Strategist at FXCM.