All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Dollar Drops as Markets Fear 1 Million US Unemployed

Last updated 3/6/2009 5:49 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Rumors fly that NFPs will print -1M pushing dollar lower
• PBOC's Zhou - we'll act decisively to prop up confidence
• BoE's King to focus on QE going forward
• OIl $44/bbl
• Gold rallies to $940/oz as $900/oz holds

Overnight Eco

• AUD AIG Construction Index 29.5 vs. 34.1
• CHF CPI hotter at 0.2% vs. -0.1% forecast
• GBP PPI Input jumps much higher at 0.6% vs. 0.1%
• GBP PPI Output steady at 0.1%

Event Risk on Tap

• USD Non-Farm Employment Change expected at -615K
• USD Unemployment Rate expected at 7.9%
• USD Average Hourly Earnings expected at 0.3%

Price Action

• USD/JPY slides to 9700 on broad dollar sell off
• AUD/USD can' thold 6400 despite dollar weakness as data dour
• GBP/USD trades to 1.4300 but cant hold highs though PPI proves hotter than forecast
• EUR/USD rallies all the way to 1.2700 on fears that US NFP will be horrid

The EUR/USD rose sharply in Asian and European trade today ahead of the critical US Non Farm Payroll report as currency markets feared that the number could approach 1 million unemployed  in the worst reading since 1949.  The pair rose to a high of 1.2727  in a bout of short covering ahead of the release before easing slightly below the 1.2700 figure.  

Our own research suggests that the NFP may actually surprise to the upside given the upturn in the employment component of the US ISM Non Manufacturing survey. As our colleague  Kathy Lien wrote yesterday, “The single biggest reason why we believe that the amount of jobs lost last month could be less than 600k is because of the rebound in the employment component of service sector ISM.  Over the past 10 years, there has been an 82 percent positive correlation between non-farm payrolls and the employment component of the service sector report.  The last time we saw a rebound was in December 2008 and it correctly forecasted a marginal improvement in non-farm payrolls.  In December, NFPs dropped by -577k compared to -597k the previous month. We strongly believe that non-farm payrolls will rebound once again.  Our forecast is for non-farm payrolls to fall by less than -598k.  Considering that the most pessimistic forecast is for a -800k decline, we consider our call optimistic. “

Nevertheless, the employment situation in US remains dour and should  the correlation with ISM Non Manufacturing fail today,  the impact on the dollar could be severe. We wrote earlier that a very poor NFP report would no doubt depress US consumer spending further and that dynamic in turn could have even more detrimental effects on Chinese export income forcing Chinese policymakers to divert more of their capital towards domestic stimulus programs.

If China curbs its demand for US government paper the dollar will come under enormous pressure suddenly losing its safe haven attractiveness. Therefore if today’s NFPs turn out to be as negative as the uber bears fear, they could serve as a turning point in the EUR/USD trade with euro gaining ground on anti-dollar sentiment alone, irrespective of the current economic problems in the Eurozone.

FX Upcoming

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

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.