US: FX reactions to payrolls surprises – RBC CM

Research Team at RBC Capital Markets, suggests that the reactions to recent payrolls releases have generally been close to “normal”.

Key Quotes

“Last month’s move was almost exactly as predicted after an outlier in June. We include our estimates for the response in EUR/USD and USD/JPY below.

Expectations for today’s headline payrolls release have not changed following the ADP report and we don’t get the ISM non-manufacturing survey until Monday. The headline consensus of 180K is probably a fair representation of market expectations, though we note many highlighting downside seasonal risks, which may skew the market reaction toward an upside surprise moving USD more than a negative surprise.

Each 10K upside (downside) surprise in the payrolls report results in a 0.1% fall (rise) in EUR/USD. The elasticity for USD/JPY is, in the long run, very similar, though there have been fewer outliers than for EUR/USD as the direction of the USD/JPY reaction is less ambiguous when markets take their cues from equities.”