European Session: Waiting on NFP

Market Brief

The USD weakened versus most of the majors with the exception of the JPY as US equities closed up nearly 2% and Asia markets are also much higher across the board. Positive economic data and optimistic central bank commentary helped spur risk-seeking as EURUSD traded 1.4812-1.4919 and USDJPY 90.88-89.99. Oil is now above $80 and gold remains bid at $1095.

Yesterday, the Bank of England held rates unchanged as expected, but the announced increase in QE of GBP25bln was below the market's target for GBP50bln. This triggered a sharp rally in GBPUSD from 1.6500 to 1.6600 as the additional assets will be purchased over a 3 month period, implying a slower pace of asset purchases. The ECB decision and press conference followed shortly afterwards but produced few surprises. ECB President Trichet's comments that not all liquidity measures currently in place would be needed as much as in the past gave a boost to EURUSD, but questions on the strength of EURUSD merely prompted a reiteration of the line that a strong dollar is in the interest of the US – albeit with an additional mention that orderly rises in Asian currencies, particularly China's, would be welcome.

In Australia the November Statement of Monetary Policy revealed upgrades in the RBA's inflation and growth assumptions; the magnitude of the upgrades was large compared to its August forecast and even more extreme compared to its May forecasts. AUDUSD has been well supported this morning up to highs of 0.9176. The next RBA move remains largely data-dependent following the weaker retail sales figure. While it is still a close call, forecasts are largely calling for a 25bp rise in December.

Today’s highlight will be the release of US labour data. Consensus is looking for a -175k change in October, meaning last month’s -263k decline was just a blip in the improving trend. That said, a rebound in the labour force after September’s sharp fall may mean that the unemployment rate rises from 9.8% in September and hits 10.0% for the first time since June 1983. A check of dollar responses to the non-farm payrolls data over the past eight months suggests that upside surprises in the employment data have been good news for the USD vs. the JPY and EUR whereby upside surprises have tended to lead to a higher USDJPY and weaker EURUSD. Historically the best way of playing a surprise NFP is through USDJPY. We could see choppier trading into year-end as a result of investors looking to book profits, which would be dollar-supportive.

Today highlight will be the release of US labour market data. Calculations suggest that non-farm payroll employment fell by around 180,000 in October. That would mean the acceleration in the rate at which payrolls fell in September, to a 264,000 decline, was just a blip in the improving trend. That said, a rebound in the labour force after September’s sharp fall may mean that the unemployment rate rises from 9.8% in September and hits 10.0% for the first time since June 1983. A check of dollar responses to the non-farm payrolls data over the past eight months suggests that upside surprises in the employment data have been good news for the USD vs the JPY and EUR whereby upside surprises have tended to lead to a higher USDJPY and weaker EURUSD. Historically the best way of playing a surpise NFP is through USDJPY.

Currency Tech

AUDUSD
R 2: 0.9220
R 1: 0.9180
CURRENT: 0.9165
S 1: 0.8970
S 2: 0.8905

USDCAD
R 2: 1.0960
R 1: 1.0870
CURRENT: 1.0620
S 1: 1.0598
S 2: 1.0505

EURJPY
R 2: 135.75
R 1: 135.00
CURRENT: 134.80
S 1: 132.50
S 2: 131.70

USDMXN
R 2: 13.455
R 1: 13.405
CURRENT: 13.275
S 1: 13.205
S 2: 13.175

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot