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What Matters Today For the Dollar

Last updated 12/4/2009 5:24 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• China's SAFE - dollar key, but diversification on the way
• All eyes on NFP
• Nikkei up modestly but clears 10K, Europe lower ahead of US numbers
• OIl flat at $77.46/bbl
• Gold lower but holds $1200/oz at $1203/oz. last

Overnight Eco

• CHF CPI bit hotter at 0.2% vs. 0.1%

Event Risk on Tap

• CAD Employment Change expected at 15.3K
• CAD Unemployment Rate expected at 8.6%
• USD Non-Farm Employment Change expected at -111K
• USD Unemployment Rate expected at 10.2%
• USD Average Hourly Earnings expected at 0.2%
• CAD Ivey PMI expected at 60.6
• USD Factory Orders expected at 0.2%

Price Action

• USD/JPY holds above 88.00 in quiet trade
• AUD/USD channels around .9250 as rik flows neutral
• GBP/USD trades back above 1.6600 on some EUR/GBP sales
• EUR/USD comes of 1.5100 as equities lower ahead of NFP

It’s been a typically quiet pre-NFP night in the FX market with volatility further dampened by the fact that the G-20  eco calendar is completely barren of event risk  until the North American trade. Equities put in a listless performance with Europe slightly lower ahead of the employment number, but the Nikkei eking out a small gain to climb above the 10K barrier for the first time in five weeks.

China’s State Administration of Foreign Exchange (SAFE) made a brief splash  in the market when it reaffirmed its commitment to the greenback as the key pillar of its reserve strategy, but at the same time noted that it will seek to diversify in to other major currencies. As we wrote earlier,” China’s preference for safety and liquidity in its foreign exchange rate portfolio leaves it with little choice but remain heavily positioned in US fixed income instruments which remain the most liquid capital markets in the world. Nevertheless, today’s commentary by SAFE is hardly a vote of confidence for the greenback and could only add to its woes if the current, steady downdraft in the dollar accelerates sharply suddenly threatening the value of China’s massive FX positions.”

The NFP report is notoriously  difficult to handicap and our colleague Kathy Lien has posted a detailed analysis that suggests that market expectations may be a bit too optimistic given the very modest improvement in the employment component of the ISM Non Manufacturing report. On the other hand, some other market analysts have noted that seasonal adjustments have had an extraordinarily negative impact on the NFP data over the past few months and this month’s statistical correction may not be nearly as detrimental to the headline numbers as on the period past.

The NFP number may be further complicated  a the rise in the unemployment rate, which many market participants believe could happen given the inadvertent guidance on the matter by White House press secretary Robert Gibbs who noted yesterday that it may tick upward. In short the NFP numbers today may be very lumpy, frustrating both bulls and bears in their mixed message to the market. However, in the tug of war between the unemployment rate and the payroll numbers the payroll data will prevail especially if it prints below the psychologically key -100,000 barrier.  The sharp improvement in job destruction is likely to be viewed as a key positive for the US economy going forward and  could trigger a rally in the dollar even if  risk flows prove supportive.   In either case the knee jerk reaction could whipsaw the early movers as it has done over the past several months, but the direction of the greenback at the end of the day is likely to be positively correlated to today’s NFP results.

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Comments (2)

Demax

December 04, 2009 at 09:05 AM ET

Are we to believe that the markets' reaction to the NFP data is one of "We don't believe it." ?

I just can't rationalize the reaction Boris.

bschlossberg

December 04, 2009 at 03:24 PM ET

I wrote "direction of the greenback at the end of the day is likely to be positively correlated to today’s NFP results. " Perhaps it wasn't clear but what I meant was that the dollar would rally if NFPs were good and fall if they wee bad regardless of risk. This is exactly what happened

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.