Mizuho on USD - FJElite

NFP day. Consensus looks for NFP around 110k, unemployment unchanged at 4.3% and AHE at 0.3% MoM. In my view, a weak print probably leaves July as only a residual risk into CPI, while an in-line report should keep pricing broadly unchanged. On the other hand, a small beat with unemployment lower can move July closer to 50/50, while a blockbuster number risks putting a hike properly back in play as Warsh’s credibility is now at stake. Yesterday, USTs opened weaker with the global bear-steepening impulse, but the front end found buyers after softer ADP/ISM and Warsh’s Sintra comments that inflation expectations and inflation risks have come down. The market took that as dovish at the margin, although the bid was short­lived. Oil helped the front-end bid as WTI prices pushed to fresh post-Iran lows below $68.50pb as Hormuz flows continue to improve and US-lran technical talks appear to be progressing. The lower oil impulse gives the Fed some cover not to rush, but it also removes one of the arguments against a hike if the labour market stays firm. Yes, oil is taking some inflation heat out of the system, but payrolls will decide whether the market should keep testing July.