• Dollar Traders Prepare for the Impact of January NFPs
  • Euro was Disappointed by the ECB Decision and Will Likely be Let Down by the EU Meeting
  • Canadian Dollar Poised for Exceptional Volatility on its Own Jobs Data and NFP Blowback
  • Australian Dollar: The RBA Keeps its Hawkish Outlook with an Upwardly Revised GDP Outlook
  • Japanese Yen Looks to Once Again Play the Role of Funding Currency and Safe Haven
  • New Zealand Dollar will be Burdened by Finance Ministers Outlook for Curbed Rate Hikes

Dollar Traders Prepare for the Impact of January NFPs

It’s that time again. January non-farm payrolls (NFPs) are due in the upcoming New York trading session; and as always the market eagerly awaits the data’s release. The relevance of the data as a timely measure of the overall gauge of health for the US economy has diminished significantly over the past year. Furthermore, even its role as catalyst for risk appetite has faded against a backdrop of frustratingly robust speculative interests. Nevertheless, the potential for volatility and quick trading opportunities continues to draw the masses in. We could see the gravity of the event risk already weighing in on the currency market Thursday as activity levels receded. Though it is difficult to isolate and visualize, the dollar itself was little moved through the active session. USDJPY’s temperate 65-point range and meager 9-point day-over-day advance is a good reflection of the greenback itself. Note that this is very similar to the lack of direction and volatility from the S&P 500. Yet, some FX traders may be tempted to claim a high level of activity on the dollar’s part with reference to EURUSD or AUDUSD. Though, if we take a look across the euro and Aussie dollar-based crosses; it quickly becomes obvious that the greenback’s performance was incidental.

Heading into this prominent economic release with the knowledge that it does little to shift the underlying outlook for growth and has consistently fallen short of generating anything more than a short burst of volatility under most circumstances over the past few years; it may be tempting to simply disregard the indicator altogether. That would be a mistake. While it will take many months of positive job growth to get the US back to the level of ‘normal’ or ‘full’ employment it enjoyed prior to the Great Recession, there is still considerable potential for reaction to the data. The promise for volatility doesn’t necessarily rest with the outcome of the data itself – rather it is the speculative backdrop that defines the market. While it may seem that the markets recovered quickly from last Friday’s critical slip (a move that threatened the blissful ignorant, bullish drift for the S&P 500); this crack in the facade of optimism left a permanent stain of doubt. Passive investors and high speculators no doubt realize that the steady rise will have to put in for a refreshing correction eventually; and that inevitable event moves closer with each passing day. It is with this concern that the masses will absorb the data, whereas it used to be that they were looking for any reason to reaffirm their open positions.

So, while there is a tacit bias over this data from the start; that does not mean we should simply measure its immediate impact on EURUSD and GBPUSD volatility and move on. While our trading will be defined by this short-term reaction; the course we take over the coming week and beyond could be altered by this data. The most likely outcome for this data is a reading that is generally ‘in-line’ with the current 146,000 consensus or perhaps slightly beats this benchmark. Looking at some of the leading indicators, there is plenty of support for such an outcome. The ADP private payrolls report (an indicator that deviates from the NFPs considerably on a month-to-month basis) printed better than expected, initial jobless claims dropped sharply recently, and both the services and manufacturing sector ISM survey employment figures rose to multi-year highs. That said, a disappointment would have the most dramatic impact on price. With an optimistic lead in and strained nerves following last week’s slip, there won’t be much tolerance for a shortfall.

Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD and GBPUSD Top Candidates for NFP Volatility

Euro was Disappointed by the ECB Decision and Will Likely be Let Down by the EU Meeting

Where the Portuguese bond auction Wednesday was a disappointment for euro activity, the ECB rate decision would encourage significant turnover. However, here again, the market reaction was not encouraged by the statement or President Trichet’s commentary, but rather the deviation of the outcome from the consensus expectations. At the last rate decision, the policy authority took a slightly more hawkish tone where the market was expecting absolutely no change. Therefore, this time around, the anticipation was for another small step towards that inevitable rate hike; but instead, the commentary was nearly a word-for-word recitation of the last meeting’s rhetoric. Over the final trading session of this week, expectations are once again elevated. EU officials are meeting to discuss expanding the region’s bailout efforts. Discord is expected with Germany holding firm against government bond purchases; but confirmation of such will offer another reason to lighten up on the euro.

Canadian Dollar Poised for Exceptional Volatility on its Own Jobs Data and NFP Blowback

The Canadian dollar faces its own employment data Friday; but the timing of its labor statistics is unfortunate for news traders. The economic link between the US and Canada means investors in the Northern neighbor will pay close attention to NFPs; and therefore, the reaction to Canada’s data is temporarily muted. That said, should both series support or oppose the Canadian dollar, the reaction will be that much greater.

Australian Dollar: The RBA Keeps its Hawkish Outlook with an Upwardly Revised GDP Outlook

Interest rates are always a hot topic for FX traders; and that fact was certainly confirmed with the Australian dollar’s reaction to the RBA’s updated forecasts in its Monetary Policy Statement. While the bank kept its inflation projections through 2011 and 2012 unchanged; this year’s growth benchmark was raised from 3.5 to 4.25 percent. This is an optimistic view given the outlook for housing and emerging markets.

Japanese Yen Looks to Once Again Play the Role of Funding Currency and Safe Haven

With NFPs ahead, it is easy to see the role that the Japanese currency will play. Should investor optimism be leveraged, the yen will play its role as a funding currency; and if fear starts to infiltrate the capital market’s steady performance, its relative safe haven function will paint the picture. That said, it is worth noting that the yen is richly priced given the seeming robust advance in equities and other speculative assets.

New Zealand Dollar will be Burdened by Finance Ministers Outlook for Curbed Rate Hikes

Outside of risk appetite trends and interest rate potential, there is little that the New Zealand dollar will respond to fundamentally. Given the small size of the economy and its relatively minor trade position, the kiwi enjoys a position amongst the upper FX echelons because of its history as an investment currency. That is a value that was damaged by Finance Minister English’s suggestion that reigning in the deficit will curb rate hikes.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

CHF

8:00

Foreign Currency Reserves (JAN)

202.6B

China could show its intentions towards easing monetary policy through its management of Foreign reserves.

EUR

10:00

Italian CPI (NIC incl. tobacco) (MoM) (JAN P)

0.3%

0.4%

Inflation is a problem for various members of the EU. Should Italy contribute to the mix, it will just add to the argument of an ECB hike and an unbalanced approach towards monetary and fiscal policy.

EUR

10:00

Italian CPI (NIC incl. tobacco) (YoY) (JAN P)

2.0%

1.9%

EUR

10:00

Italian CPI - EU Harmonized (MoM) (JAN P)

-1.3%

0.4%

EUR

10:00

Italian CPI - EU Harmonized (YoY) (JAN P)

2.3%

2.1%

CAD

12:00

Net Change in Employment (JAN)

21.2K

22.0K

Canadian employment is a holdover for a strong economic performance. However, with the BoC and government projecting a cooling of activity and potential trouble in the housing market, will employment start to suffer?

CAD

12:00

Unemployment Rate (JAN)

7.6%

7.6%

CAD

12:00

Full Time Employment Change (JAN)

38

CAD

12:00

Part Time Employment Change (JAN)

-16.1

CAD

12:00

Participation Rate (JAN)

66.9

USD

13:30

Change in Non-Farm Payrolls (JAN)

135K

103K

The preeminent market mover, NFPs will have speculators expecting volatility. However, the consistency in trend for this report points to a long-road ahead for a labor market recovery.

USD

13:30

Unemployment Rate (JAN)

9.5%

9.4%

USD

13:30

Change in Private Payrolls (JAN)

150K

113K

USD

13:30

Change in Manufacturing Payrolls (JAN)

10K

10K

USD

13:30

Average Hourly Earnings (MoM) (JAN)

0.2%

0.1%

Commodity inflation is volatile and particularly concerning; but wage inflation is price pressure that would push the Fed to the inevitable rate hike.

USD

13:30

Average Hourly Earnings (YoY) (JAN)

1.7%

1.8%

USD

13:30

Average Weekly Hours (JAN)

34.3

34.3

CAD

15:00

Ivey Purchasing Managers Index (JAN)

53.2

50.0

Business activity will pale in impact to the labor data; but the different angle on economic activity will be valuable.

Currency

GMT

Upcoming Events & Speeches

EUR

-:-

EU Officials Meet to Discuss the Effectiveness of the Region’s Bailout

EUR

8:30

ECB's Jose Manuel Gonzalez-Paramo Speaks on Economy

USD

18:00

Fed's Richard Fisher Speaks on U.S. Economy

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

1.4025

1.6420

89.00

1.0000

1.0922

1.0600

0.8230

127.60

146.05

Resist 1

1.3875

1.6300

86.00

0.9775

1.0750

1.0200

0.8000

120.00

140.00

Spot

1.3634

1.6136

81.63

0.9456

0.9911

1.0153

0.7734

111.29

131.71

Support 1

1.3425

1.5750

80.00

0.9300

0.9800

0.9600

0.6850

103.80

125.00

Support 2

1.2900

1.5315

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

13.8500

1.6575

7.4025

7.8165

1.4945

Resist 2

7.7500

5.7800

6.2750

Resist 1

12.5000

1.6300

7.2825

7.8075

1.4655

Resist 1

7.5800

5.6625

6.1150

Spot

12.0029

1.5766

7.2647

7.7860

1.2743

Spot

6.4751

5.4676

5.7410

Support 1

11.7200

1.5300

6.9900

7.7490

1.2700

Support 1

6.2850

5.2625

5.7030

Support 2

11.4400

1.4725

6.8000

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

1.3907

1.6336

82.35

0.9589

0.9956

1.0213

0.7785

113.56

133.52

Resist 1

1.3770

1.6236

81.99

0.9523

0.9933

1.0183

0.7759

112.42

132.62

Pivot

1.3690

1.6179

81.70

0.9459

0.9900

1.0133

0.7725

111.74

132.04

Support 1

1.3553

1.6079

81.34

0.9393

0.9877

1.0103

0.7699

110.60

131.14

Support 2

1.3473

1.6022

81.05

0.9329

0.9844

1.0053

0.7665

109.92

130.56

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

1.3807

1.6308

82.49

0.9585

1.0008

1.0322

0.7843

112.65

133.27

Resist. 2

1.3763

1.6266

82.26

0.9556

0.9983

1.0288

0.7817

112.29

132.87

Resist. 1

1.3719

1.6223

82.03

0.9527

0.9959

1.0254

0.7790

111.93

132.46

Spot

1.3632

1.6137

81.58

0.9469

0.9909

1.0186

0.7737

111.21

131.65

Support 1

1.3545

1.6051

81.13

0.9411

0.9859

1.0118

0.7684

110.49

130.84

Support 2

1.3501

1.6008

80.90

0.9382

0.9835

1.0084

0.7657

110.13

130.43

Support 3

1.3457

1.5966

80.67

0.9353

0.9810

1.0050

0.7631

109.77

130.03

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com