Forex - Waiting on Private Payrolls

Forex News and Events:

Markets are anxious ahead of today’s critical payroll report. The Forex Market settled into an easy range during the Asian session and traders don’t seem to be in any kind of hurry to open new positions given the uncertainly of today’s US data.

One of the core themes this summer has been the seesawing fate of the US economic data and the probability of a double dip in the wider global economy. It seems logical that markets would put a exorbitant amount of weight on today’s private payroll figures given the current environment .

Today’s release will be the last big news on final official trading day of summer. This week’s build up has not decreased the speculation that today could be the bottom of the US soft patch. Yesterday’s US data releases were better than expected with initial jobless claims ticking down from 478k to 472k and July pending home sales rising 5.2% m/m - ADP’s weaker than expected results were waived off as overly skewed to the downside.

ISM manufacturing, viewed as key indicator, foretold of an upward surprise. The general feel of today’s US release its that it could push the Fed in either direction - towards further QE or away from it. We are taking a more cautious approach because positive data, especially a well-elevated labor stat, should be viewed in context of a generally mixed economic picture. That said, the market has priced in a lot of negative news so a good reading today should give risk-correlated trades a decent boost going into the weekend.

Should the figure print to the upside, we would be looking to buy CAD and AUD while selling JPY and CHF. Short risk positions will rapidly be squeezed out making for some potential strong gains. Just to clarify, today will be private payroll numbers and not NFP due to the distortion of temporary census workers.

Quick recap of yesterday’s ECB meeting - as universally expected, rates were held at 1.0% while Trichet (somewhat unexpectedly) announced the ECB would continue to conduct refinancing operations indefinitely. The statement supports our prediction that that the ECB anticipated optimist growth conditions in 2011.

From a market view, it still seems that EU liquidity is stuck and worries over the banking sector have rates rising and could potentially constrict healthy growth. Perhaps the biggest shocker was the announcement that the EU plans to limit naked short sales of stocks and government debt - but so far no details were released. On a final note, we are still bullish on the CHF even if the broader safe-haven trades are unwound. Swiss Q2 GDP was stronger than expected at 0.9% q/q which is a good number consider the climate and cements expectations that the SNB could move to a more hawkish track rather than to fight deflation.

Today's Key Issues (time in GMT):

08:53 EUR German Services PMI Last 58.5 Exp 58.5
08:58 EUR Euro zone Services PMI Last 55.6 Exp 55.6
08:58 EUR Euro zone Composite PMI Last 56.1 Exp 56.1
10:00 EUR Retail Sales Last 0.0 M/M 0.8 Y/Y Exp -0.5 M/M 0.3 Y/Y
13:00 EUR Gonzalez Paramo Speaking 13:30 USD Non Farm Payrolls Last -131 Exp -70 Street -108
13:30 USD Unemployment rate Last 9.5 Exp 9.5
13:30 USD Average Weekly Hours Last 34.2 Exp 34.2
13:30 USD Average hourly Earnings Last 0.2 Exp 0.2
15:00 USD ISM Non Manufacturing Last 54.3 Exp 53.0
15:00 USD Lockhart ( FOMC Non Voter ) Speaking on the US Economy

The Risk Today:

EurUsd EURUSD: Since the break of the 3-week downtrend EURUSD has looked supported above 1.2780; however whilst we remain opportunistic in the very short-term to exploit 50-100 pip moves to the upside when they appear, our preference is still to wait for rallies as an opportunity to reload shorts. Resistance levels on the topside kick in at 1.2930 (major ceiling of supply from mid-August) and the back side of the former 2-month uptrend at 1.2950. Should we break higher, then only psychological resistance at 1.3000 stands in the way of another attempt at the 10 Aug high 1.3227. On the downside we focus on 24 Aug’s low 1.2588, and below there 1.2522 and the 2 & 6 Jul lows of 1.2483.

GbpUsd GBPUSD: The pair looks to be pointing itself back lower, with first destination expected to be that 1.5325 support seen on Tuesday. Should the buying interest at 1.5325 have been exhausted by the last rebound, next weak support is expected at 1.5235, and then major support kicks in at 1.5115-25 (50% fibonacci level and 21 Jul lows). Those caught long and looking for an exit will likely step in back around 1.5460, Wednesday’s highs 1.5492, and 1.5580 (23.6% fibonacci retracement of 1.4229 – 1.6000 challenged on Monday).

UsdJpy USDJPY: We still expect a high chance of another visit to 83.60 (24 Aug low) as the week draws on and BoJ intervention remains absent, with the risk reward profile heavily stacked in favour of the bears. Only support below 83.60 is the lower edge of the 6-week downtrend (currently 82.60). Really not many technical landmarks are highlighted below as this area has not been explored since 1995. Our short-to-medium term target (barring the possibility of physical BoJ intervention) is therefore the 79.75 – 80.00 area where the pair bottomed out on that run 15 years ago. On the topside the key levels of note are Wednesday’s peak 84.65, the upper edge of the 6-week downtrend (now 84.80), major resistance at 85.90 (where the bears thwarted a previous break of the 6-week downtrend) and 86.50 (5 Aug high).

UsdChf USDCHF: USDCHF continues to be dominated by its 4-week downtrend, and stubborn resistance at 1.0185 has looks to be holding firm. We still think that a return to parity is inevitable, and below there the key remaining supports 0.9960 (3 Dec 2009 low) and 0.9920 (26 Nov 2009 low). Expect rallies to be hindered by resistance through 1.0185 and 1.0229 break-out area. Extended rallies likely to be blocked by 1.0550 (13 Aug high), 1.0640 (27 Jul high), and 1.0670 (200-day moving average).

Resistance and Support:

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