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FOREX: US Dollar May Rise Anew on Hints US Jobs Data to Disappoint

FOREX: US Dollar May Rise Anew on Hints US Jobs Data to Disappoint

2011-10-07 07:16:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Australian, New Zealand Dollars Follow Stocks Higher in Overnight Trade
  • US Dollar, Major Currencies Look to US Jobs Report to Shape Outlook
  • Leading Indicator Hints NFP May Miss Expectations, Sinking Risky Assets

The Australian and New Zealand Dollars outperformed in overnight trade as Asian stock exchanges followed Wall Street higher, pulling the sentiment-linked currencies along for the ride. The MSCI Asia Pacific regional equity index added 2 percent, bolstered by news that the European Central Bank will resume long-term repo operations (LTROs) to boost liquidity access for Euro Zone banks hobbled by the region’s debt crisis as well as rumors that the European Commission is working on a coordinated plan to recapitalize lenders to help deal with losses from a default on the EU periphery.

Looking ahead, a quiet European calendar is likely to see traders looking ahead to the US Employment report due in the afternoon. Consensus forecasts call for the world’s top economy to add 55,000 jobs in September, keeping the unemployment rate at 9.1 percent. While a print in line with expectations would mark an improvement after hiring stalled in August, some leading indicators point to the possibility of a downside surprise. Indeed, the ISM non-manufacturing survey showed service-sector employment shrank in September. Since an overwhelming majority of US workers work in service industries (76.8 percent according to estimates published by the CIA), that ought to be a good reflection of what happened economy-wide.

Needless to say, the outcome is critical in setting the direction of risk appetite. At the macro level, the two major headwinds facing sentiment are the EU debt crisis and the slowdown in the global recovery. Naturally, the latter theme is intimately tied to performance in the world’s largest economy. Ben Bernanke made clear in his Congressional testimony earlier in the week that while the Federal Reserve had other tools it could use to bolster growth, it had played its card for the time being and was now in wait-and-see mode to gauge how effective its new policy mix will prove. With that in mind, the outcomes of key US economic data releases are no longer being interpreted in terms of the likelihood of a so-called “QE3”, but rather seen as a more direct reflection of the corporate earnings outlook.

With most major currency pairs showing intimate correlations with the S&P 500, the outlook on earnings (particularly on the eve of the third-quarter reporting season that kicks off in force next week) and its implications for the path of risk appetite will be of critical importance in shaping trading dynamics in FX markets. Put simply, this means that the outcome of the jobs report is poised to set the tone for trajectory of the safe-haven US Dollar against most of its leading counterparts, not just in the several hours of trade before the closing bell on Wall Street but over the days and weeks ahead.

Related:Japanese Yen Flat After BoJ Leaves Rates Unchanged

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Performance of Construction Index (SEP)

30.0

-

32.1

23:50

JPY

Official Reserve Assets ($) (SEP)

1200.6B

-

1218.5B

3:37

JPY

Bank of Japan Rate Decision

0.10%

0.10%

0.10%

5:00

JPY

Coincident Index (AUG P)

107.4

107.4

107.1

5:00

JPY

Leading Index (AUG P)

103.8

103.5

104.6

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

5:45

CHF

Unemployment Rate (SEP)

2.8%

2.8%

Medium

5:45

CHF

Unemployment Rate s.a. (SEP)

3.0%

3.0%

Medium

6:45

EUR

French Central Government Balance (€) (AUG)

-105B

-86.6B

Low

6:45

EUR

French Trade Balance (euros) (AUG)

-5950M

-6460M

Low

8:30

GBP

PPI Input n.s.a. (MoM) (SEP)

1.2%

-1.9%

Low

8:30

GBP

PPI Input n.s.a. (YoY) (SEP)

17.1%

16.2%

Low

8:30

GBP

PPI Output n.s.a. (MoM) (SEP)

0.2%

0.1%

Low

8:30

GBP

PPI Output n.s.a. (YoY) (SEP)

6.2%

6.1%

Medium

8:30

GBP

PPI Output Core n.s.a. (MoM) (SEP)

0.1%

0.2%

Low

8:30

GBP

PPI Output Core n.s.a. (YoY) (SEP)

3.7%

3.6%

Medium

10:00

EUR

German Industrial Production n.s.a. (YoY) (SEP)

6.4%

10.1%

Medium

10:00

EUR

German Industrial Production s.a. (MoM) (SEP)

-2.0%

4.0%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3303

1.3586

GBPUSD

1.5311

1.5636

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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