The price action in the London session was rather lackluster as markets consolidate ahead of the blockbuster US nonfarm payroll report out in early NY. European marts are mixed and overall unchanged on average while US futures continue to trade on either side of flat. Economic data across the pond was a touch better than forecast. UK services PMI followed its manufacturing counterpart and printed an above expected 45.5 in March – the best result in five months. The eurozone PMI composite was revised higher for March to 38.3 from a preliminary 37.6 as well.
Volatility in FX was modest to say the least. EUR/USD added 20 pips into the 1.3430 area and we would expect further choppiness into the NFP number. Immediate support lurks by 1.34 while 1.35 should be a good initial barrier to the upside. The yen crosses were up a touch higher as overall risk taking sentiment prevails. USD/JPY rose 25 pips to 99.70/80 while EUR/JPY was up a more aggressive 55 points into the 134 pivot.
Looking ahead, US March employment data will be released at 0830ET/1230GMT. The consensus forecast is for a -660K NFP change (prior -651K) and a rise in the unemployment rate from 8.1% to 8.5%. We expect to see a worse than expected -710K change in NFP and a smaller increase in the unemployment rate to 8.4%. Negative revisions to prior period data may result in total NFP losses reported in March approaching -1M.
We think an NFP drop of more than -750K and/or an increase in the unemployment rate to above 8.5% will be needed to rattle investor confidence and trigger profit-taking as risk aversion returns. An 'as expected' or 'better than expected' result is likely to be ignored, and may even be construed as the start of a plateau in layoffs, fueling further gains in sentiment and risk appetites. As always, revisions to prior months' data will be an important wild card. In this environment, we look for most of the price action to be in the yen crosses, which are likely to follow stocks closely.
Upcoming Economic Data Releases (NY Session) prior expected
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4/3 12:30 GMT US Change in Nonfarm Payrolls MAR -651K -656K
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4/3 12:30 GMT US Unemployment Rate MAR 8.10% 8.50%
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4/3 12:30 GMT US Change in Manufact. Payrolls MAR -168K -160K
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4/3 12:30 GMT US Average Hourly Earnings MoM MAR 0.20% 0.20%
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4/3 12:30 GMT US Average Hourly Earnings YoY MAR 3.60% 3.50%
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4/3 12:30 GMT US Average Weekly Hours MAR 33.3 33.3
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4/3 14:00 GMT US ISM Non-Manf. Composite MAR 41.6 42
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4/3 16:00 GMT US Bernanke Speaks at Fed Credit-Markets Conference
