Likely volatile session ahead with NFP headlining the action

Fundamental View

Surprise commentary from ECB Governing Council staff that “staff have outlined €500bn investment grade QE plans, but no decision taken on QE” has pushed the EURUSD to new highs for the day. After a brief foray below the 1.1800 handle we reversed the negative decline in the Euro from poor production numbers. The initial reaction saw the pair move higher but we have drifted lower since, the lack of decision from the ECB providing enough uncertainty for some to cling to the hope they will not act. This morning we have seen Industrial Production numbers for mainland Europe and the UK. Germany posted numbers below expectations with a reading of -0.10% against an expected 0.30%. French and Spanish numbers also moved lower from expectations, reaffirming the slightly negative sentiment in Europe going into week’s end. UK numbers posted negative with a print of -0.10% against the expectations of 0.20%; this data was for the month of November however and thus the weighting of importance on this number was slightly lower. GBPUSD has risen this morning even on the back of poor data, trailing the EURUSD higher on the aforementioned surprise comments from ECB Governing Council Attendee.

Today’s View

The session ahead is likely to be volatile in the short term as we have several key headlines due. We have the headline Non-farm payrolls number due at 1330, leading with an expected number of 240k for the month of December. The 2014 average was 240k so a year end with a number in line with expectations would mean the best year for job creation since the year 2000. The year-end data will also include the unemployment rate for the US, expected at 5.7%. Any disparity from the expected could result in dollar moves and, given the volatility of the 1330 release on the first Friday of each month, it is likely that moves will be exaggerated. We will also look closely at the quality of the jobs created; the average hours worked is a key component as it often highlights whether these jobs are of long-term duration or Christmas temporary shift-based work. The other viewpoint to see this from is the rate-hike acceleration potential. If the number is consistent with November’s number of 321k we could easily see rate hike expectations being priced in to the April meeting as opposed to the June meeting that many market participants are anticipating. This could lead to weakness in stocks as they price in the removal of loose policy; the clearest trade is likely to be on the dollar.

Alternative View

We highly recommend traders avoid positioning themselves ahead of today’s data as volatility will be extremely high. Retracement entries are advised. The following strategies are valid, assuming data comes out in-line with expectations.