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The U.S. dollar is trading sharply higher against the euro and Japanese Yen ahead of Friday's non-farm payrolls report.  With the last 2 monetary policy decisions behind us, the NFP report will now have the market's undivided attention.  No fireworks came out of the BoE and ECB rate decisions as U.K. policy makers left the tone of their monetary statement unchanged while the ECB announced additional measures to phase out excess liquidity.  The euro failed to rally because the central bank remained very cautious on the economic outlook and downgraded their inflation forecasts.

For more on the BoE and ECB, read our Instant Insights on the Bank of England and European Central Bank rate decisions.

Blame it on Mr. Frosty

Jobless claims fell from 498k to 469k last week which confirms that Mr. Frosty was behind the increase - the drop in jobless claims brings us back to pre-snowstorm levels. Although many economists are looking for a sharp decline in payrolls tomorrow, traders will most likely downplay the weakness by attributing it to temporary layoffs in the weather-sensitive construction and transportation industries.  Continuing claims also dropped from 4.63 million to 4.50 million which would have been encouraging if not for the fact that the number of people receiving extended benefits rose by 178.5k and emergency benefits rose by 207.6k.  Therefore despite the drop in jobless claims, the labor market is still very weak.  After getting rid of all their excess fat, companies have been reluctant to hire. Instead, the productivity data indicates that they are simply making their existing employees work harder.

Meanwhile factory orders rose 1.7 percent in January which was slightly worse than the market expected but orders in December was revised sharply higher from 1.0 to 1.5 percent.  This indicates that the manufacturing sector is continuing to perform well butthe housing market is showing pockets of weakness with pending home sales falling by 7.6 percent. The renewal of the tax credit appears to not be having much of an impact on demand. 

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.