Morning Slices: Canada Unemployment Data Comes in at Alarming Levels

Fundys – In Canada, employment data was alarming coming in at -129k after analysts had been looking for a -40k print. The market seemed to be already anticipating a weaker print following Flaherty’s comments yesterday in which the Finance Minister said the number would likely be “regrettable.” However, the reading appears to be more than regrettable after putting in the biggest drop on record. On the broader macro front, market sentiment has started to shift somewhat this week with traders seemingly more inclined to take on risk and shift back out of their USD and Yen long positions. However it is too early to tell at this point whether indeed we are in the process of any legitimate transition. Clearly, investors will be keenly focused on this morning’s event risk in the form of the US employment data. In the overnight session data releases were once again less than impressive with Eurozone, UK and Swiss releases all disappointing. Early rumors swirled about a very weak German industrial production reading of -11.0% after analysts had been looking for a -9.6% print. Indeed these rumors were confirmed and then some, with the data series coming in at -12.0% y/y. Meanwhile, in the UK industrial production figures were weaker as well coming in at -9.4% y/y versus consensus estimates of -7.8% y/y. Also in the UK, PPI data was released, coming in higher than expected. The inflation release could be net Sterling positive however, with the data potentially suggesting that inflation expectations are better anchored. Elsewhere, Swiss unemployment numbers were marginally weaker with the headline data coming in slightly higher than expected. UK Business Secretary Mandelson has been echoing President Obama’s views on excessive bonus payouts, while also warning of the potential backlash. An article in a local UK paper discussing the potential for second wave of huge losses at UK and European banks has attracted some attention. Talk on the wires from an un-named government source that next week’s Q4 German GDP numbers could be even weaker that analyst forecast. Fed Yellen is slated to speak later today in Hawaii.  Looking ahead, all eyes now turn to NFP (-540k expected) due up at 13:30GMT.

Techs - EUR/USD continues to hover just over the recent range lows in the low 1.2700’s. It remains unclear whether the pair is now looking to put in a medium-term higher low, or is merely consolidating ahead of the next big drop. Key levels to watch over the coming session come in by 1.2905 and 1.2705.  USD/JPY is looking more constructive following Thursday’s impressive up-day and with the pair now trading back into the Ichimoku cloud, could be poised for a major recovery. However, it is still premature to become aggressively bullish. Key levels to watch come in by 92.25 and 90.75.  GBP/USD has managed to put in yet another daily higher high but now trades back to daily opening levels. The 50-Day SMA will be the key level to watch with the indicator having proved to be a formidable cap over the past several months. USD/CHF has now cleared the recent 1.1715 range highs and could be set for a fresh upside extension back towards the 1.1830-1.1925 area. A close above 1.1715 will confirm, while inability to do so will put the pressure back on the downside. The key level to watch below comes in at 1.1575.

Flows – Asian central banks on the bid in EUR/USD. US investment house standout buyer of Aussie this week. Japanese exporters on the offer in USD/JPY. More ETF related selling in oil funds has contributed to the offered tone in the commodity which is currently down some 2.3%.

Trade of the Day – AUD/CAD: The cross has been in the process of recovering over the past few days with the market accelerating on Friday to test key short-term falling trend-line resistance off of the 0.8690 (5Jan) highs. However the broader structure remains bearish and with the price now on the verge of testing the trend-line which comes in just over 0.8200, we see scope for a pullback and renewed selling. The daily “Average True Range” (ATR) for the cross comes in at 180 pips and with the market already exceeding this level ahead of the US open, a short trade off of the falling trend-line resistance becomes even more compelling. Even if the market is unwilling to pullback, establishing a short by the trend-line shouldn’t produce that much pain as the ATR indicator indicates that the market should be done with its rally, at least for today. Position: SHORT @ 0.8210 FOR A 0.7870 OBJECTIVE, STOP @0.8340. 

Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
To contact the author of this report, e-mail jskruger@fxcm.com

Joel Kruger publishes 4 daily pieces:

“Morning Slices” – Morning Overview using Fundamental, Technical, Flow, and Quantitative Analysis (Includes “Trade of the Day”).
Monday-Friday (between 6:30am-7:30am EST)

“Cross Country” – A Midday Fundamental Update, along with Technical Analysis of Selected Cross Rates. 
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“Scandi Daily” – A Specialized Daily Fundamental and Technical Overview of the Nordic Currencies.  (This report is only distributed through email. Please contact Nordic@fxcm.com if you would like to be added to distribution.)
Monday-Friday (between 11:30am-12:30pm EST). 

“Daily Classical” – A Daily Technical Overview of the Major Currencies. 
Monday-Friday (published between 2:00pm-3:00pm EST)