FOREXLast Friday, the U.S. jobs data threw the FX markets into a tailspin. The stronger-than-expected Non-Farm Payroll (NFP) report showed a whopping 272,000 increase in jobs, far exceeding forecasts. Despite some eyebrow-raising details, such as establishment strength versus household weakness and a low response rate, the NFP data bolstered the risk of the Fed staying on the sidelines for longer. This will undoubtedly be a hot topic at this week’s Fed meeting.Next on our radar is the Bank of Japan (BoJ) meeting on Friday. We’re expecting some tweaks to their JGB (Japanese Government Bonds) buying policy, especially given the recent shift in tone from BoJ officials. Watch for articles in the Nikkei this week for BoJ information.Bank of Japan will weigh the future of JGB purchases at this week’s policy meeting.

TOKYO — The Bank of Japan is expected to next week consider whether to scale back its roughly 6 trillion yen ($38 billion) in monthly government bond purchases as it moves toward policy normalization.

Members of the BOJ policy board will meet for two days through June 14. ( Nikkei Staff Writers June 8))

Trade tensions are also brewing between Europe and China, with Brussels potentially announcing increased tariffs on Chinese EV imports. This could be a game-changer for the auto industry and global trade dynamics.Meanwhile, we have USD CPI and PPI data coming up. After the US jobs overshoot, the last thing risk markets want is a string of warmish inflation prints. This could add fuel to the fire, causing further market volatility.This week is crucial for the Yen, with global yields poised to react to the FOMC meeting on Wednesday and the BoJ meeting on Friday. The Yen is currently the third best-performing G10 currency. Despite the strong jobs data last Friday, the US 2-year yield has dipped this week. Yen buying flows have been bolstered by increased volatility in popular carry positions among Japanese retail traders, affectionately known as Mrs. Watanabe.For example, USD/MXN dropped nearly 5% last week, prompting some to buy back the Yen versus the Peso. According to major Japanese Prime Brokers, MXN selling flows versus the Yen was six times larger than the average over the past six months on one particular day this week, leading to a 155.12 print on USD/JPY at the London open on Thursday. This highlights the perils of jumping late into the carry trade, where picking up nickels in front of a freight train (USD) can be risky.The FX market is set for a rollercoaster ride this week. From pivotal Fed and BoJ meetings to potential trade spats and crucial inflation data, it’s a perfect storm of factors that could shake things up. So, buckle up and fasten those seatbelts because it will be a wild ride.Picking Up Nickles In Front Of A Freight TrainDespite the ECB cutting rates this week, the EUR/USD has barely budged, down a mere 0.3%. The ECB’s cautious tone has kept yields elevated, adding an interesting twist to the currency dynamics. This has implications for the Yen as we approach the Bank of Japan (BoJ) meeting. Given the current environment, the Yen will likely remain weak, potentially pressuring the BoJ to tighten financial conditions to lend support.Last week, I confidently traded USD/JPY on the rallies and held long positions in EUR/USD. This week, however, my FX crystal ball is a bit cloudier. The blockbuster payroll report suggests a stronger dollar, but I’m not fully convinced yet,Here’s why: Despite the robust Non-Farm Payroll (NFP) report, the US-Japan 10-year yield spread narrows. This could support 10-year yields in Japan and limit yen selling. Additionally, the possibility of BoJ intervention—whether in the currency or bond markets—could further ease yen pressure. However, the real pivot will be what happens on the US side. The strong job report certainly pushes back the timeline for any significant downturn in USD/JPY.In summary, while the strong NFP data points to a stronger dollar, narrowing yield spreads and potential BoJ actions might limit yen selling. It’s a complex interplay, and the key will be closely monitoring US economic data and Fed actions. The coming days will be crucial in determining the next moves in the FX market. So, keep an eye on those yield spreads and any hints of intervention from the BoJ, as these will be the telltale signs of where the market is headed. As I wrote last week, my real worry for short USD is a real possibility that a hawkish Summary of Economic Projections could drive the algos batty. (USD surge)HAWKISH FOMC?The markets are buzzing with anticipation as the Fed gears up for its June 12 meeting, where they’re widely expected to keep the policy rates steady for the seventh consecutive time, holding the fed funds target range at 5.25%-5.50%. It’s like watching a rerun of your favourite sitcom – you already know what will happen, but you tune in anyway.Chair Powell’s press conference might offer some entertainment, but the real drama is expected in the Summary of Economic Projections (SEP). Picture the SEP as the season finale cliffhanger – we’re all on the edge of our seats, waiting to see where the rate-cut axe falls.Back in March, the SEP projected 75 basis points (bps) of cumulative rate cuts for each of 2024, 2025, and 2026. But that prediction now seems shakier than a Jenga tower in an earthquake. The hawks are expected to swoop in, advocating for a mere two rate cuts instead. Dropping it to one move would require about one-third of participants to suddenly develop a new love for fighting inflation – a tall order.For 2025 and 2026, March’s median calls were already a game of economic Twister, with 75 bps (or less) of cumulative rate cuts barely supported by half the participants. So, expect some reshuffling here, too, adjusting for the higher starting point. And that longer-run level? Previously bumped up to between 2.50% and 2.625%, it might get another nudge upwards.Meanwhile, the SEP will also get a makeover. With policy rates staying higher (at least for this year) and considering the starting points (real GDP growth at 1.3% annualized in Q1, unemployment at 4.0% in May), we can expect some adjustments. March’s projections for 2024 Q4 growth (2.1% y/y) and joblessness (4.0%) will likely be revised down and up, respectively. And those projections for total and core PCE inflation (y/y) at 2.4% and 2.6%, respectively? Well, they might inflate a bit more, hinting that policy rates could stay elevated next year, too.In the grand soap opera of the markets, it seems the plotline is all about rate cut optimism and the Fed’s cautious approach. So, grab your popcorn, sit back, and watch the economic drama unfold. And remember, no matter how predictable it seems, there’s always a twist waiting in the next episode.SHOWING UP TO A GUNFIGHT WITH A SPOONI was going to do a write-up about the CPI and PPI, but I can’t be bothered. Every day, policymakers and huge market players rely on statistical noise to make crucial, sometimes monumental, career-ending decisions. However, these figures are later revised to resemble nothing like the original print. However, by then, you are either out of a job or are tapping into your credit card to fund your retail account, which is a move dumber than bricks.Let’s be clear: approximations are the best we can do when dealing with macroeconomic aggregates in large economies. Precision in BLS data is a pipe dream. It’s not necessarily a criticism to call the data largely meaningless, but waging the mortgage based on the fourth, fifth, and sixth decimal places is a ridiculous (and potentially disastrous) table game. You might as well call it a casino when it comes to trading around macro releases.In today’s market, machines are in the driver’s seat. Market movements hinge on fractions of decimal points in inflation prints, often without regard for statistical error. Human traders are increasingly benched by AI-driven algorithms that react faster than any person ever could.Given this landscape, discussing economic data feels almost futile. Humans can’t trade these figures instantly; the AI algorithms have that covered. Unless you’re armed with $ 50,000 x 5 for the latest Nvidia chips, your best bet is to trade the fallout 3 to 5 minutes after the data drops. During the data release, you are basically showing up to a gunfight with a spoon these days.Embrace the Aftermath, Not the ReleaseSo, what’s the strategy in this new reality? Focus on the aftermath rather than the initial release. While AI-driven trades execute within milliseconds, creating an immediate market reaction, human traders can still find opportunities in the resulting volatility. Here’s how:

The Bottom LineMacro aggregates might be the stuff of policy debates and headline news, but for traders, their immediate utility is dwindling in the face of machine trading dominance. Instead of getting caught up in the noise, focus on the ripples left by the machines. There’s still a human edge to be found in the aftermath of the data deluge.More By This Author:Weekly Market Wrap: Dazed And Confused
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