http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2011/01/07/FOREX_What_Should_We_Expect_from_NFPs_and_Is_It_Tradable.html
- Dollar: What Should We Expect from NFPs and Is It Tradable?
- Euro Delivered Another Blow as Permanent Bailout Mechanism and Debt Sales Talk Revived
- Canadian Dollar Faces the Same Round of Data as the Greenback but not the Same Reaction
- British Pound Traders Pained by the Best Service Sector Activity Report in 20 Months
- Japanese Yen Surprisingly Stable after Official Warns Finances on the ‘Edge of a Cliff’
- Australian Dollar: Looking Beyond the Flood there are Early Signs of Economic Cooling
Dollar: What Should We Expect from NFPs and Is It Tradable?
Even under normal circumstances, the US nonfarm payrolls (NFP) report is the most consistent market-moving economic indicator. Yet, we seem to be diverting sharply from ordinary with the upcoming release of the December statistics. Since Wednesday, speculation surrounding the week-end employment data has ramped up to dangerous levels. The catalyst for this interest was the blow-out ADP private payrolls figure for the same period. It should be noted though that this particular indicator has proven itself to be a poor benchmark for the government reading. That said, even a significant difference between the two could see the volatility-inducing NFP figure on a bullish path. As it stands, the 297,000 increase in Wednesday’s figure (the biggest in their short record) has bumped up the Bloomberg consensus forecast by 15,000 to 150,000 net jobs. Yet, this isn’t the number the market will genuinely respond to. On the fringes, there has been chatter that the headline reading could actually reach closer to half-a-million increase. And, though speculators are notorious for their excessive projections; they are also the ones that position for such outcomes. What’s more, considering underlying risk appetite trends have yet to take back the reins on the broader markets; this particular indicator could be held to higher regard as the greater unifier and reinvigorator.
The combination of a market that is fixated on a single event alongside a wide discrepancy for expectations leverages the possibility of a volatile outcome because some portion of the crowd will be caught on the wrong side of the market. From here, we can map out the likely scenarios for how the data will post and how the markets could respond. Naturally, the most lackluster outcome would come from a reading that was generally in line with expectations. That said, there isn’t a very narrow definition for our consensus forecast and speculation is running much higher; so a number roughly between 150,000 and 200,000 would likely be seen as the uninspiring result. A bullish surprise will be the most difficult picture to develop because many will be preparing ahead of time for a high number. That said, the majority will be expecting a number closer to the figure economists have set forth; so the further the reading comes above 200,000, the more aggressive the response. That leaves the greatest risk to a disappointment that covers the official consensus and below. Yet
Establishing the scenarios benchmarks investor confidence; but there is an added layer of complexity for the dollar. If we were trading under ‘normal’ conditions, a strong number would leverage confidence and subsequently weigh the dollar lower as safe haven / funding currency. Recently, however, the greenback has shown a positive response to encouraging US data. This in itself is likely a temporary state as a holdover from the unusual New Year liquidity conditions. Therein lies the greatest possible contribution from this data: a significant enough surprise to revive sentiment trends (bullish or bearish) to reengage correlations based on risk appetite trends. Beyond this factor, the long-term implications of a single month’s employment statistics won’t materially change the fact that the US is trying to recovery more than 8 million lost jobs over the span of just a few years. And, further looking beyond the immediate impact of the NFPs, traders should also take note of Fed Chairman Bernanke’s testimony before the Senate Budget Panel. Stimulus is where these unusual conditions originated; so it is worth monitoring.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD and GBPUSD Ideal Candidates for a Big NFPs Release
Euro Delivered Another Blow as Permanent Bailout Mechanism and Debt Sales Talk Revived
With the US employment statistics drawing the broader market’s attention Thursday, most assets and currencies were trading in relatively tight ranges. The exception was the euro. The shared currency plunged across the board – with EURUSD and EURCHF putting forth particularly remarkable performances given their respective positions this week. Anyone doing a surface analysis would be confused; because the Euro Zone consumer confidence survey for December hit an October 2007 high while German factory orders was more than three times expectations. The real driver was the state of the region’s financial markets. After Portugal announced its intentions to raise another 750 million to 1.25 billion euros next week alongside Spain and Italy, CDS spreads widened to records. Another issue a little more under the radar was an EU consultation paper that suggests bond holds on ‘too big to fail banks’ should share in future losses – a vote that could prove critical in the near future.
Canadian Dollar Faces the Same Round of Data as the Greenback but not the Same Reaction
Most of us will be preoccupied with the US NFPs going forward; but it should not be forgotten that Canada will be releasing its data just before the US. Net employment is expected to increase; but the general deterioration in Canada’s fundamental backdrop makes a strong case for a volatile reaction to any disappointments. The most remarkable development: a disappointment from both Canadian and US data.
British Pound Traders Pained by the Best Service Sector Activity Report in 20 Months
The UK is not far removed from the health of the Euro Zone. Yet, by Finance Minister Osborne’s suggestion that European policy officials haven’t taken the bold steps necessary to get their house in order; it would seem the two are far removed. Add to that the December Services PMI survey hitting its lowest reading since April 2009 with costs rising to a September 2008 high, and the sterling is looking faint.
Japanese Yen Surprisingly Stable after Official Warns Finances on the ‘Edge of a Cliff’
Wednesday, the Japanese yen was tumbling; but there wasn’t anything particular from the Japanese wires that was encouraging the move. Yesterday, however, the Chief Cabinet Secretary followed up on the Prime Ministers warning that tax hike discussions were ahead by saying the nation’s finances are “approaching the edge of a cliff.” This is the type of language that points to real, economic-hitting changes ahead.
Australian Dollar: Looking Beyond the Flood there are Early Signs of Economic Cooling
There has been a preoccupation with the flooding in Australia and for good reason – the impact on vital exports significantly impacts national income. However, suspending this headline, we also saw Thursday morning a service sector PMI that was reporting contraction for the 10th month this past year. Recall, that the manufacturing report was also negative. These may be early signs of a peaking economy.
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ECONOMIC DATA
Next 24 Hours
| Currency | GMT | Release | Survey | Previous | Comments |
| JPY | 23:50 | Japan Buying Foreign Bonds (Yen) (DEC 31) | In the week ended Dec. 17, Japanese investors sold 184.5B yen in overseas bonds and notes, sold 33.3B yen in overseas stocks, and bought 72.1B in overseas short term securities. | ||
| JPY | 23:50 | Japan Buying Foreign Stocks (Yen) (DEC 31) | |||
| JPY | 23:50 | Foreign Buying Japan Bonds (Yen) (DEC 31) | |||
| JPY | 23:50 | Foreign Buying Japan Stocks (Yen) (DEC 31) | |||
| GBP | New Car Registrations (YoY) (DEC) | -11.5% | Declined annually in last 5 months. | ||
| AUD | 5:30 | Foreign Reserves (Australian dollar) (DEC) | 43.6B | Reserves dipped slightly in November. | |
| CHF | 6:45 | Unemployment Rate s.a. (DEC) | 3.5% | 3.6% | Seasonally adjusted unemployment likely fell in December to the lowest level since May 2009. |
| CHF | 6:45 | Unemployment Rate (DEC) | 3.7% | 3.6% | |
| EUR | 7:00 | German Retail Sales (MoM) (NOV) | 1.0% | 0.2% | October retail sales led by a 4.0% increase in food and clothing sales. |
| EUR | 7:00 | German Retail Sales (YoY) (NOV) | 3.0% | -0.7% | |
| EUR | 7:00 | German Trade Balance (euros) (NOV) | 15.0B | 14.2B | Germany’s trade surplus narrowed slightly in October as exports posted their largest monthly decline since April. |
| EUR | 7:00 | German Current Account (euros) (NOV) | 15.5B | 11.7B | |
| EUR | 7:00 | German Exports s.a. (MoM) (NOV) | 1.0% | -1.3% | |
| EUR | 7:00 | German Imports s.a. (MoM) (NOV) | 1.6% | 0.1% | |
| EUR | 7:45 | French Trade Balance (euros) (NOV) | -3.431B | October deficit smallest in 8 months. | |
| EUR | 7:45 | French Central Government Balance (euros) (NOV) | -133.1B | Budget deficit may surpass 2009 level. | |
| EUR | 9:00 | Italian Unemployment Rate s.a. (NOV P) | 8.6% | 8.7% | Rose amid weak consumer spending. |
| EUR | 10:00 | Euro-Zone Gross Domestic Product s.a. (QoQ) (3Q F) | 0.4% | 0.4% | Europe’s economy grew slightly in the third quarter, as slowing export growth and weak investment countered a rise in consumer demand. Overall, GDP growth eased to 0.4% from 1.0%. |
| EUR | 10:00 | Euro-Zone Gross Domestic Product s.a. (YoY) (3Q F) | 1.9% | 1.9% | |
| EUR | 10:00 | Euro-Zone Household Consumption (QoQ) (3Q F) | 0.3% | 0.3% | |
| EUR | 10:00 | Euro-Zone Gross Fixed Capital (QoQ) (3Q F) | 0.0% | 0.0% | |
| EUR | 10:00 | Euro-Zone Government Expenditure (QoQ) (3Q F) | 0.4% | 0.4% | |
| EUR | 10:00 | Euro-Zone Unemployment Rate (NOV) | 10.1% | 10.1% | Jobless rate at highest in 12 years. |
| EUR | 11:00 | German Industrial Production s.a. (MoM) (NOV) | -0.1% | 2.9% | Industrial production rose in October by the most in five months. |
| EUR | 11:00 | German Industrial Production n.s.a. and w.d.a. (YoY) (NOV) | 10.9% | 11.7% | |
| CAD | 12:00 | Net Change in Employment (DEC) | 20.0K | 15.2K | Canada’s jobless rate fell in November to the lowest since January 2009, as employment increased and 40,400 people aged 15 to 24 left the workforce. |
| CAD | 12:00 | Unemployment Rate (DEC) | 7.7% | 7.6% | |
| CAD | 12:00 | Full Time Employment Change (DEC) | -11.5 | ||
| CAD | 12:00 | Part Time Employment Change (DEC) | 26.7 | ||
| CAD | 12:00 | Participation Rate (DEC) | 67.0 | 66.9 | |
| USD | 13:30 | Change in Non-Farm Payrolls (DEC) | 150K | 39K | Economists raised their forecasts for December payrolls, after yesterday’s ADP report showed the biggest jump in company payrolls since records began in 2001. |
| USD | 13:30 | Unemployment Rate (DEC) | 9.7% | 9.8% | |
| USD | 13:30 | Change in Private Payrolls (DEC) | 175K | 50K | |
| USD | 13:30 | Change in Manufacturing Payrolls (DEC) | 5K | -13K | |
| USD | 13:30 | Average Hourly Earnings (MoM) (DEC) | 0.2% | 0.0% | Average hourly earnings were unchanged in November after increasing the prior four months. |
| USD | 13:30 | Average Hourly Earnings (YoY) (DEC) | 1.8% | 1.6% | |
| USD | 13:30 | Average Weekly Hours (DEC) | 34.3 | 34.3 | |
| USD | 20:00 | Consumer Credit (NOV) | $0.5B | $3.4B | Rose in last two months, led by an increase in non-revolving credit. |
| Currency | GMT | Upcoming Events & Speeches | |||
| USD | 14:30 | Fed Chairman Ben Bernanke Testifies Before Senate Budget Panel | |||
| USD | 21:30 | Fed's Charles Evans Speaks on Monetary Policy | |||
| USD | 21:30 | Fed's Janet Yellen Speaks on Monetary Policy |
SUPPORT AND RESISTANCE LEVELS
CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT
| Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
| Resist 2 | 1.3840 | 1.6420 | 89.00 | 1.0000 | 1.0922 | 1.0600 | 0.8230 | 127.60 | 146.05 |
| Resist 1 | 1.3700 | 1.5910 | 86.00 | 0.9735 | 1.0750 | 1.0200 | 0.8000 | 120.00 | 140.00 |
| Spot | 1.3003 | 1.5473 | 83.33 | 0.9655 | 0.9966 | 0.9944 | 0.7566 | 108.35 | 128.93 |
| Support 1 | 1.3000 | 1.5312 | 80.00 | 0.9300 | 0.9950 | 0.9600 | 0.6850 | 103.80 | 125.00 |
| Support 2 | 1.2925 | 1.5186 | 75.00 | 0.9000 | 0.9700 | 0.9375 | 0.6585 | 100.00 | 119.00 |
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
| Currency | USD/MXN | USD/TRY | USD/ZAR | USD/HKD | USD/SGD | Currency | USD/SEK | USD/DKK | USD/NOK | |
| Resist 2 | 14.4500 | 1.6755 | 7.1750 | 7.8165 | 1.4945 | Resist 2 | 7.7500 | 5.7800 | 6.2750 | |
| Resist 1 | 13.8500 | 1.5931 | 6.7650 | 7.8075 | 1.4655 | Resist 1 | 7.5800 | 5.6625 | 6.1150 | |
| Spot | 12.2213 | 1.5445 | 6.7919 | 7.7720 | 1.2950 | Spot | 6.8640 | 5.7300 | 5.9603 | |
| Support 1 | 12.0500 | 1.4724 | 6.4000 | 7.7490 | 1.2750 | Support 1 | 6.4500 | 5.2625 | 5.7030 | |
| Support 2 | 11.7200 | 1.3475 | 5.9200 | 7.7450 | 1.2500 | Support 2 | 6.1250 | 5.1000 | 5.5200 |
INTRA-DAY PIVOT POINTS 18:00 GMT
| Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
| Resist 2 | 1.3230 | 1.5610 | 83.72 | 0.9755 | 1.0031 | 1.0046 | 0.7625 | 110.25 | 129.76 |
| Resist 1 | 1.3116 | 1.5542 | 83.53 | 0.9705 | 0.9998 | 0.9995 | 0.7596 | 109.30 | 129.35 |
| Pivot | 1.3057 | 1.5495 | 83.20 | 0.9658 | 0.9962 | 0.9964 | 0.7575 | 108.71 | 128.89 |
| Support 1 | 1.2943 | 1.5427 | 83.01 | 0.9608 | 0.9929 | 0.9913 | 0.7546 | 107.76 | 128.48 |
| Support 2 | 1.2884 | 1.5380 | 82.68 | 0.9561 | 0.9893 | 0.9882 | 0.7525 | 107.17 | 128.02 |
INTRA-DAY PROBABILITY BANDS 18:00 GMT
\
| Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
| Resist. 3 | 1.3190 | 1.5650 | 84.31 | 0.9780 | 1.0075 | 1.0091 | 0.7681 | 109.99 | 130.75 |
| Resist. 2 | 1.3144 | 1.5606 | 84.06 | 0.9749 | 1.0048 | 1.0055 | 0.7653 | 109.58 | 130.29 |
| Resist. 1 | 1.3097 | 1.5562 | 83.82 | 0.9717 | 1.0020 | 1.0018 | 0.7624 | 109.17 | 129.84 |
| Spot | 1.3003 | 1.5473 | 83.33 | 0.9655 | 0.9966 | 0.9944 | 0.7566 | 108.35 | 128.93 |
| Support 1 | 1.2909 | 1.5384 | 82.84 | 0.9593 | 0.9912 | 0.9870 | 0.7508 | 107.53 | 128.02 |
| Support 2 | 1.2862 | 1.5340 | 82.60 | 0.9561 | 0.9884 | 0.9833 | 0.7479 | 107.12 | 127.57 |
| Support 3 | 1.2816 | 1.5296 | 82.35 | 0.9530 | 0.9857 | 0.9797 | 0.7451 | 106.71 | 127.11 |
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Written by: John Kicklighter, Currency Strategist for DailyFX.com
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