Markets are cautious ahead of another key Non-farm Payrolls

Good morning,

- The dollar came under renewed pressure Thursday, building on Wednesday’s rout on concerns about the strength of the U.S. economy and fading expectations that the Federal Reserve will deliver more interest-rate increases this year. “The continued moderation in U.S. rate expectations continues to leave the [dollar] on the defensive,” said Jeremy Stretch, currency strategist at CIBC. The euro EURUSD, +0.0178% traded at $1.1211, up from $1.1109 late Wednesday in New York and topping the $1.12 level for the first time since October. The euro rose earlier in the day, despite a speech by European Central Bank President Mario Draghi that emphasized the “risks” surrounding a “wait-and-see” approach to embarking on further monetary stimulus.

- Top/worst performers in majors versus USD on Thursday: CAD 0.2%, CHF -0.0%, EUR -0.1%. NZD -0.3%, GBP -0.3%, AUD -0.2%.

- Stabilization of US production may present fundamental factors supportive to oil prices

- RBA Monetary Policy Statement Bearish Notes China as Main Concern. Lower A$ supporting trade-exposed parts of the economy, retail trading seen improved at Christmas and post-Christmas. Low inflation provides scope for easier policy, Sees 2% to 3% GDP growth in 2016 which is unchanged from November estimate.

- The downward pressure on the dollar may have taken a pause for breath in the overnight trading, but this is more to do with the upcoming Non-farm Payrolls report than any sense that the dollar bulls are going to fight back. The shift in sentiment away from the dollar has been remarkable and it will be interesting to see if today’s Non-farm Payrolls report can do anything to reverse the move. The report announced at 1330GMT is calling for 190,000 jobs, an estimate that interestingly has not budged even in the wake of a stronger than expected ADP number on Wednesday. However markets will also be interested in the average hourly earnings which again disappointed last month, with expectation of +0.3% for the month which would do little to improve the year on year trends. Markets tend to spend the run up to Non-farm Payrolls in cautious mode and that seems to be again the case with the early moves today on forex and equities. The big question is that would a positive payrolls report do anything more than give the dollar bears another selling opportunity?

- NZDJPY, like other yen pairs, has enjoyed a respite over the past two weeks after a rocky start to the year, to say the least. But given the downtrend that is still in place, combined with the early 2016 selloff, the rally that began on January 20th was doomed to fail in short order. In the case of the New Zealand dollar versus the Japanese yen, we don’t have to look beyond the 4-hour chart to see that the 570-pip rally is on the verge of breaking down. Rising and falling wedges alike are handy technical patterns simply because a breakout is guaranteed. The only question is which direction the market will favor. That said, a rising wedge is is very much a bearish pattern that represents exhaustion. Therefore, a break to the downside is the likely outcome.From here, traders can watch for a close below wedge support. Such a break would first expose the 77.60 support level followed by trend line support that extends off of the 2009 low. At the moment, that level comes in near 74.30. - Japan Finance Minister: Will implement policy so that market can absorb JGBS.

- Fed's Mester: Says inflation expectations stable even with low oil. Market volatility lasting longer than episode in Aug., Not worried about credibility with inflation

- Wednesday-Thursday $USDollar drop is the biggest two-day aggregate tumble since July 11, 2013.

Major news for today: US NFP’s, CAD Trade Balance, CAD Unemployment, CAD Ivey PMI, EUR German Factory Orders.