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Risk FX Slightly Higher Ahead of NFPs

Last updated 12/2/2011 5:13 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Merkel - EU summit will look for more fiscal integration but no Eurobonds
• UK Construction PMI bit better
• Nikkei up 0.54% Europe up 1.89%
• Oil at $100.98/bbl
• Gold at $1751/oz.

Overnight Eco

• JPY Capital Spending (3Q) -9.8% vs. -4.1%
• EUR Euro-Zone Producer Price Index (MoM) (OCT) n/a
• GBP Purchasing Manager Index Construction (NOV) 52.3 vs. 52

Event Risk on Tap

• USD Change in Non-farm Payrolls (NOV) expected at 120K
• USD Unemployment Rate (NOV) expected at 9.0%
• USD Average Hourly Earning (MoM) (NOV) expected at 0.2%
• CAD Net Change in Employment (NOV) expected at 17.5K
• CAD Unemployment Rate (NOV) expected at 7.3%

Price Action

• USD/JPY inching towards 78.00
• AUD/USD better risk takes it above 1.0250
• GBP/USD 1.5700 caps rally
• EUR/USD moves towards 1.3500 as equities boost.

Risk FX was mildly higher in quiet pre-NFP trade boosted by 1.5% gains in European equities, but pair failed to generate much momentum with EUR/USD staling ahead of the 1.3500 barrier while AUD/USD was unable to pull away from 1.0250 as currency traders remained on the sidelines ahead of the key US employment report. 

German Chancellor Angela Merkel stated today that development towards a fiscal union was on the agenda for the EU Summit scheduled for December 9th. Speaking in Berlin, Ms. Merkel also stated that the EU crisis may take years to resolve as she tried to temper market expectations ahead of the meeting. She also reiterated her opposition to the idea of Eurobonds which many market analysts believe is the only viable long term solution to the current sovereign debt crisis.

Ms. Merkel’s stark refusal to establish an institutional framework to mutualize credit risk in the region suggests that Germany is not yet ready to commit to the type of fiscal integration that the market deems necessary and may therefore result in investor disappointment on December 9th. 

The EZ economic calendar was nearly barren today with only UK PMI Construction data on the docket.   The report printed a tad better than expectations at 52.3 from 52.0 eyed but was still worse than the month prior when it came in at 53.9. Ahead of the release cable was trading softer than the other majors finding resistance at the 1.5700 level but has since firmed up slightly to trade back to the figure. Still it may continue to underperform other high beta currencies for the rest of the day if NFPs spur any kind of rally in risk during North American trade.

As our colleague Kathy Lien reported yesterday, there are many reasons to be bullish the NFP number. Among the many precursors to the labor report that we examine six have shown steady improvement in the past month including the ADP report on Wednesday and the 4 week moving average of the weekly jobless claims. Unfortunately the best forecaster of NFP results – the employment subcomponent of the ISM  Services report – will not be available until next Monday, but the broad consensus in the market is that private payrolls should increase by 150K. A print of 200K new jobs or better along with some upward revisions to the prior month’s data would provide the most bullish scenario for today’s trade and could propel a strong rally in risk assets sending EUR/USD through 1.3500 and USD/JPY through the 78.00 levels. On the other hand anything below 100K would be viewed as a major disappointment by the market which over the past several weeks has been conditioned to expect upside surprises from US economic data. Finally, Canadian labor data which is due at 1200 GMT, 90 minutes before the US numbers, can sometimes serve as  good precursor to US labor demand and will be watched carefully by the market for any clues to the NFP. 

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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.