Talking Points:

• NFPs fuel both Fed rate expectations and risk trends (via confidence in US economy), which is more important now?
• The NFPs surprise for June data was the 'best' in 7 years, the surprise in May one of the 'worst' since the GFC
• EUR/USD and USD/CHF offer ranges to work with, but USD/JPY and GBP/USD are my preference for key outcomes 

  The monthly, US labor statistics are occasion for considerable speculation and frequently heavy volatility. Heading into the July NFPs, the first consideration is what kind of market this data will descend upon. Normally, the jobs data trades off for prominence between Fed rate speculation and the assessment of health for the largest economy in the world (a drive for 'risk appetite'). Given the downturn in global growth forecasts and the Fed's reticence to move on policy due to its concern of international risks, these winds are likely aligned for the Dollar. A positive reading can both lift speculative appetite and rate forecasts which bolsters the fundamental backdrop of the Greenback.

  Another, more unique aspect of this particular month's data is the intensity of 'surprise' necessary to motivate the market. In the last jobs update, the actual figure was 107,000 jobs above consensus - the biggest 'beat' since November 2009. The print prior to that (for May's statistics) showed a 'miss' of economists' consensus forecast to the turn of 122,000 which matched the worst outcome since November 2008. These are significant surprises that are difficult to live up to - much less outpace. Further, with the market desensitized by the impact of events like the US 2Q GDP, BOJ and BoE rate decisions; it may be difficult to rouse the same degree of volatility and trend development.

  With the hurdles in mind, the Dollar and risk trends (S&P 500 is my preferred benchmark) are showing different environments in which to absorb this data. FX volatility in general is higher than most counterparts and the Dollar's alignment to economic confidence makes for a more straightforward interpretation. The speculative appetite aspect has proven remarkably defiant to fundamental fundamental winds. While there is plenty of reach in this data, my preference for a clear bearish outcome to this data (Dollar) would be GBP/USD while the bullish scenario (Dollar and risk) favors USD/JPY.  

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