The pattern of worse than expected forward-looking economic data elicited a flight to safety in the NY session. US equities slumped -2.6% in broad terms for the largest one-day decline since we kicked off the month of July. The US initial jobless claims number printed a much worse than anticipated 551K for the latest week, on top of an upwardly revised 534K previously. This led some market participants to shade their NFP estimates a touch lower. We continue to look for a -205K decline tomorrow while the consensus is a bit more optimistic at -175K.

The ISM manufacturing report confirmed what the regional surveys had been telling us. The headline index printed a 52.6 while the market was anticipating a much more robust 54.0 read. With ''cash for clunkers'' now gone and the first-time homebuyer incentive set to expire soon, we think the data will continue to look ever more ominous in the weeks ahead.

The relapse in risk saw the US dollar come back better bid. This was no surprise given that equities and the buck have enjoyed a strong -94% correlation all year thus far. EUR/USD traded firm early on to a session high 1.4582 before settling near the 1.4540 zone as stops below 1.4510 were never triggered.

Looking ahead to tomorrow's nonfarm payrolls number, we expect a worse than expected result to elicit another selloff in risky assets. The USD would likely come back better bid still under this scenario. We also look for the positive correlation between EUR/USD and stocks to persist and look to short the pair ahead of the NFP release.

The 1.4580 zone looks like a good short-term pivot on the hourly charts and selling between there and hourly down-trendline resistance by 1.4630 makes sense in our view. We would set tight stops near the 200-hour sma currently by 1.4670/75 here. A break below the Kijun line at 1.4511 all the way down to the 1.4450 September breakout zone cannot be ruled out. As such, we would look to trail profits in EUR/USD through 1.4515/00.

Precious metals will undoubtedly weaken if the USD rallies on a disappointing NFP number. Here we would look to establish XAU/USD shorts ahead of 1008 hourly trendline resistance and the 1010 nearby highs with stops into 1014. Look to book profits into 995/990 on the follow.

Upcoming Economic Data Releases (Asia Session) prior expected

  • 10/1/2009  2330 GMT JN  Jobless Rate  AUG  5.70%  5.80%
  • 10/1/2009  2330 GMT JN  Job-To-Applicant Ratio  AUG  0.42  0.42
  • 10/1/2009  2330 GMT JN  Household Spending (YoY)  AUG  -2.00%  -0.20%
  • 10/1/2009  2350 GMT JN  Monetary Base (YoY)  SEP  6.10%  - -
  • 10/2/2009  0030 GMT AU  TD Securities Inflation MoM%  SEP  0.00%  - -
  • 10/2/2009  0030 GMT AU  TD Securities Inflation YoY%  SEP  1.70%  - -