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FX Daily Update

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Bad Payroll Data May Drive Dollar Higher…

Fri, Nov 7 2008, 13:20 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

With interest rate decisions now behind us, traders are focusing their attention in today’s data which may determine the market outlook for now. After yesterdays 50 pbs cut from ECB and a hefty 150pbs from BOE and also Trichet’s implication that there is more easing to come, markets continued their fall with DOW JONES down almost 400 points and NIKEI the same.

Today the main event investors are anticipating is the payroll data and the forecast is for a negative number of -200.000. The fact it’s the 10th consecutive negative month makes everyone wary that the country will officially enter recession. Analysts from Bloomberg are giving a wide range as to what the number will be and the best scenario is -85.000 with the worst case scenario being -300.000! Whatever the outcome it is very possible we will see dollar strength in the aftermath as risk aversion may hit the markets once again.

Under normal conditions one would say that a very negative number could mean dollar weakness. However, we learned the hard way that fundamentals are not as black and white anymore and although US data is always printing bad numbers, the dollar is getting stronger by the minute. The power of fear is what makes the dollar strong and that could continue until we see some signs of stabilization in the economic crisis. It will also be crucial to watch the unemployment number together with the NFP, which is expected to be very high.

The EUR/USD is hovering around 1.28 at the time of writing and traders do not wish to commit one way or another until they see the data. Don’t forget that even after the number; whatever the outcome we won’t know what the market is feeling until well over an hour afterwards. The reaction is expected to be volatile and the whipsaws big once again. It will be best for traders to try and avoid trading the news at times of uncertainty and risk aversion as anything is possible.

Also today we have the new home sales and the number once again is expected to be negative. This will only fuel further sell off in DOW JONES and will give the dollar more reasons to be bid across the board as a safe haven. Watch out for Obama’s speech later on in Chicago where he will meet economic officials and speak about the outlook after his election. The markets will hear what he says and will act accordingly.

So today we shall see if the dollar will continue its recent strength and if DOW JONES dives once again following the European and Asian markets, then we expect the dollar to appreciate and EUR/USD to make another try for 1.25. If the later level gives way then 1.23 comes back in the game. From that level it’s either make or break time as it can work as a good support and double bottom or it can break and give us new lows for the pair.

One thing is for sure that whatever happens in the next two hours traders will weigh the data and the recent crisis and they will follow the market sentiment whichever way it goes…

Published on  Fri, Nov 7 2008, 13:21 GMT