USD/JPY is consolidating June losses in a 108.00-50 range while awaiting the result of today's U.S.-Mexico talks on migration and tariffs and Friday's U.S. employment report, which is even more important after a meager 27k May ADP increase .
A growing divergence between an expanding U.S. services and slowing manufacturing sector, as ADP and ISM results highlight, suggests escalating protectionism is taking a toll on U.S. growth, enough so to get the Fed thinking about rate cuts.
The Fed's concern about below-target inflation will probably be heightened by today's report that Q1 and Q4 unit labor costs were revised more deeply negative , suggesting less inflation from labor tightness and more leeway to cut rates. NY cut expiries of $3bln at 108-109 and Draghi's rate cut comments nECBJUN196, which make US rates more attractive, have lifted USD/JPY.
But for the oversold USD/JPY rebound to gather momentum it must persist past today's options lift expires -- which will be replaced by the pull of big 107 expiries next week.
Also, crucially, U.S.-Mexico talks must avert tariffs on Monday.
Even at that, resistance near 109 looms while Friday's jobs report and weekend G-20 talks are awaited.