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US Dollar: Will NFPs Amplify Market Fears or Fall Flat?

US Dollar: Will NFPs Amplify Market Fears or Fall Flat?

2011-12-02 04:32:00
John Kicklighter, Chief Currency Strategist
Share:
  • US Dollar: Will NFPs Amplify Market Fears or Fall Flat?
  • Euro Loses Coordinated Rescue Momentum Despite Bond Sale, EU Promises
  • Canadian Dollar Ready to Step out of NFPs Shadow with Canadian Jobs Data
  • Swiss Franc Stirs after Government Considers Negative Rates
  • British Pound Put Under Increased Pressure by BoE King’s Warnings
  • Japanese Yen Fundamental Health Erodes on Fourth Extra Budget Proposal
  • Gold Quiet Temporary Just as Financial Market Peace Transitory

US Dollar: Will NFPs Amplify Market Fears or Fall Flat?

The performance of risk trends and the dollar on Thursday was more important to establishing the market’s general bearings than the volatile reaction to the coordinated intervention the previous day. Catching the market off guard isn’t difficult when it comes to unexpected attempts at market-wide stimulus. However, follow through is proving far more difficult to generate in these market conditions – especially when the effort is to nourish a bullish sentiment trend against the backdrop of so many problems. Perhaps generating greater concern than relief in the aftermath of an escalated rescue attempt, we note that the S&P 500 wouldn’t generate any immediate follow through on Wednesday’s 4 percent-plus rally (the biggest since August 11th). In fact, the daily range for the Index on Thursday was the second smallest in four months. One would think that true optimism would carry at least some level of follow through.

Skepticism naturally works in the dollar’s favor. Having suffered its largest single-day decline (1.1 percent) since the October 27th exhaustion move; the Dow Jones FXCM Dollar Index anchored a level of stability and closed its first official advance this week. Moving forward, it is important to gauge the natural lean of markets and take stock of the active catalysts on both sides of the sentiment balance. Given the downturn in growth that is now making its way into the forecasts of policy officials (the IMF noted it will likely downgrade GDP forecasts in January) and the real-world deterioration in financing markets; the fundamental bias is naturally bearish. That means the bar is set high for officials to cobble together a plan to change these tides. In the meantime, we continue to watch the health of funding activities (in cross board swap demand, domestic capital costs, deleveraging activity, etc). And, these measures are a long way to unsaddling the pressure.

Keeping track of the bigger picture, we have a number of milestones to keep track of. Immediately ahead of us are the US nonfarm payrolls (NFPs) for November. This indicator is adept at generating volatility; but it also consistently lacks follow through. The Bloomberg economist consensus for the report calls for an improvement over the previous month with a 125,000 net increase in jobs. A positive surprise could give another dimension to a short-term positive correction; but a look to the labor statistics’ long-term trend tells us something very different. The unemployment rate is seen holding at 9 percent – well above the 12-month average of 4.6 percent at the beginning of 2008. Ultimately, the market has historically afforded very little optimism from bullish NFPs these past years. Next week’s fundamental winds will no doubt carry greater sway with permanent sentiment shifts with planned meetings to address the source of our most pressing problems: Euro-area stability.

Related: Discuss the Dollar in the DailyFX Forum, John’s Video: EURUSD and S&P 500 at the Mercy of EU Crisis, Friday NFPs

Euro Loses Coordinated Rescue Momentum Despite Bond Sale, EU Promises

The euro struggled to advance yet again Thursday. Having failed to advance on news that the Fed, ECB, BoE, BoJ, SNB and BoC were opening the swap lines to promote liquidity – though not said specifically, a move no doubt taken to help primarily European banks - we find that there is further no follow through on the stimulus effort. We note that with this coordinated effort the cost for Euro-area banks to borrow dollars dropped sharply; but the general state of liquidity (seen in labor-swap spreads) has not improved). Normally, as soon as the lack of influence was obvious; the market would have dropped off sharply. However, there are a few points to feed hope of improvement later down the line. Tangible was the ‘improved’ Spanish and French bond auctions (with drops in 10-year yields). Far more influential and also fully dependent on hope was an announcement from Merkel and Sarkozy that they would announce Monday proposals for EU overall at the December 9th Summit.

Canadian Dollar Ready to Step out of NFPs Shadow with Canadian Jobs Data

Over the past three months, the Canadian employment figures have rivaled the NFPs for volatility. They certainly cannot stir global sentiment like the US figures can (a privilege of the world’s largest economy); but they can generate greater activity for the Canadian dollar. The best chance to see a significant reaction (one not absorbed by the NFPs); we should look for a substantial deviation from the 20,000 rise expected.

Swiss Franc Stirs after Government Considers Negative Rates

Historically, negative interest rates have popped up very few times in monetary policy. That is because such an extreme move will almost always have significant unintended consequences. However, the Swiss government may be willing to take that chance to drive its currency lower. This can be viewed as a tax on capital parked in Switzerland – one of the few things that can actually repel safe haven flows.

British Pound Put Under Increased Pressure by BoE King’s Warnings

The risk of the European sovereign and banking crisis spreading to the rest of the world and creating a global pandemic is high. Yet, market participants can happily ignore that threat under the hope that policy officials will jump on the grenade. However, BoE Governor King is doing his best to sound the alarm and warn that this won’t end well. In the Financial Stability Report, he tried again to advise preparation to UK banks.

Japanese Yen Fundamental Health Erodes on Fourth Extra Budget Proposal

While the focus is often on Europe’s funding troubles and the United States’ tremendous fiscal debt; we shouldn’t forget that Japan faces comparable issues. In the past session, it was reported that the government is drafting up its fourth extra budget – the first time we have seen four additional budgets in over six decades. Just as with the dollar, we need to really consider the safe haven appeal of the yen.

Gold Quiet Temporary Just as Financial Market Peace Transitory

As with the of the capital markets, gold was racked with fundamental tension though price remained anchored. For the precious metal, the question is whether a full-blown capital market panic will drive a need for ‘cash on hand’ (liquidity). That would seriously hit the expensive metal. Otherwise, opening swap lines, FX intervention, ballooning deficits, and pushing yields down drives capital towards the currency alternative.

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

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

Building Approvals (MoM) (OCT)

3.3%

-13.6%

Pivot for construction may be short lived

0:30

AUD

Building Approvals (YoY) (OCT)

-14.4%

-12.0%

8:15

CHF

Retail Sales (Real) (YoY) (OCT)

-0.9%

Decline may weigh on prices, CPI

9:30

GBP

Purchasing Manager Index Construction (NOV)

52

53.9

Sector continues to weaken

10:00

EUR

Euro-Zone Producer Price Index (MoM) (OCT)

0.2%

0.3%

Expected lower PPI will reduce stress on ECB to maintain price stability

10:00

EUR

Euro-Zone Producer Price Index (YoY) (OCT)

5.6%

5.8%

12:00

CAD

Unemployment Rate (NOV)

7.3%

7.3%

Canadian labor markets expected to improve, may indicate effects of stronger US economy as well

12:00

CAD

Net Change in Employment (NOV)

17.5K

-54.0K

12:00

CAD

Full Time Employment Change (NOV)

-71.7

12:00

CAD

Part Time Employment Change (NOV)

17.7

12:00

CAD

Participation Rate (NOV)

66.7

66.7

13:30

USD

Change in Non-farm Payrolls (NOV)

120K

80K

US NFPs showing expectations for a private sector rebound, mostly in services

13:30

USD

Change in Private Payrolls (NOV)

145K

104K

13:30

USD

Change in Manufacturing Payrolls (NOV)

9K

5K

13:30

USD

Unemployment Rate (NOV)

9.0%

9.0%

Unemployment rate expected to be sticky at 9.0%

13:30

USD

Underemployment Rate (U6) (NOV)

16.2%

13:30

USD

Average Hourly Earning (MoM) (NOV)

0.2%

0.2%

Secondary survey showing moderate improvement in hourly earnings, could spur additional consumer confidence

13:30

USD

Average Hourly Earning (YoY) (NOV)

2.0%

1.8%

13:30

USD

Average Weekly Hours All Employees (NOV)

34.3

34.3

13:30

USD

Change in Household Survey Employment (NOV)

277

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit http://www.dailyfx.com/technical_analysis

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS & SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

16.5000

2.0000

8.5800

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

14.3200

1.9000

8.1025

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

13.3895

1.7514

7.8663

7.7677

1.2650

Spot

6.5646

5.3767

5.5830

Support 1

12.6000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

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

1.4061

1.6218

78.86

0.8913

1.0210

1.0615

0.8102

109.95

127.11

Resist. 2

1.4006

1.6175

78.65

0.8876

1.0176

1.0567

0.8065

109.47

126.63

Resist. 1

1.3951

1.6131

78.44

0.8840

1.0143

1.0518

0.8027

108.98

126.16

Spot

1.3841

1.6045

78.03

0.8766

1.0076

1.0421

0.7951

108.01

125.21

Support 1

1.3731

1.5959

77.62

0.8692

1.0009

1.0324

0.7875

107.04

124.25

Support 2

1.3676

1.5915

77.41

0.8656

0.9976

1.0275

0.7837

106.55

123.78

Support 3

1.3621

1.5872

77.20

0.8619

0.9942

1.0227

0.7800

106.07

123.30

v

Additional Content:

Money Management Video

Trading the News Video

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

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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