[MARKET ANALYSIS] G10FX quiet into US Payrolls; JPY underperforms

Mixed action across G10FX where there is no real bias. Stealing leads for no particular reason, JPY lags after large gains this week. Choppy USD action this morning which sees EUR/USD within a narrow 10 pip range and DXY flat into NFP. Some broad based, but modest USD upside was seen after the EU cash open, lifting DXY from 99.00 to a high just below 99.10 with EUR and GBP pairs sent to lows. Drivers this morning are essentially absent, with a marginal move to an FT article detailing the Norway’s SWF proposed slashing UST holdings by about USD 80bln amid fiscal concerns, while raising JGB allocation by 2.8ppts and not touching Gilt allocation. The article also said dollar exposure would fall by 0.5ppts. While NFP is the highlight of the day, officials’ keen eye on inflation will be the deciding factor in the Fed’s September meeting, especially after Waller’s remarks on Thursday. CME’s Fedwatch tool implies a 50-50 probability of tightening, down from c. 70% pre-Waller. With a 25bps ECB hike next week fully priced, EUR will likely remain at the whim of the Buck into Payrolls. Focus will be on the first of three significant state elections in September, Saxony. Polling has AfD clearly in the lead with 40-43% of the vote; if materialised, will add to the pressure on the German Grand coalition nationally, though not change the power balance or impact economic/fiscal policy. Lane did not add anything, given ECB is in blackout. EUR/USD choppy, but found support at 1.1620. GBP saw some weakness on the DMP which showed easing 1yr inflation expectations, though the reaction was limited to around ten pips and Sterling is still the best G10 performer with BoE’s Bailey not providing commentary on monetary policy. Cable’s 1.3550 will likely provide resistance to further Cable gains absent an NFP surprise. JPY is the underperformer today as it pulls back from recent gains of over 3% vs. the Buck. The pair bottomed at 155.22 and now lies just above 156.00.