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US Dollar Response to Jobs Report to Reflect Fate of QE3 Expectations

US Dollar Response to Jobs Report to Reflect Fate of QE3 Expectations

Ilya Spivak, Head Strategist, APAC

Talking Points

  • US Employment Report Likely to be Interpreted in Terms of Fed QE3 Bets
  • Firm Jobs Growth Number Likely to Boost US Dollar vs. Major Currencies

All eyes are on the US Employment report into the end of the trading week. Expectations call for the economy to add 100,000 jobs in June, marking the largest increase in three months. The Unemployment Rate is expected to remain unchanged at 8.2 percent. US economic data has increasingly underperformed expectations over the past two months (according to figures compiled by Credit Suisse), hinting investors are likely to interpret the result in terms of its implications for the likelihood of another round of Federal Reserve quantitative easing (so-called “QE3”). As we suspected, markets were broadly disappointed after yesterday’s policy efforts from the ECB and the BOE fell broadly in line with expectations, sharpening hopes that Fed may soon deliver a lifeline.

With that in mind, a disappointing increase in hiring is likely to broadly weigh on the US Dollar amid dilution fears as QE3 expectations rebuild. Meanwhile, the Treasuries-linked Japanese Yen could be expected to push higher as yields decline. Standby sentiment-anchored currencies like the Australian, Canadian and New Zealand Dollars seem likely to rise as well if stimulus bets take hold in earnest. The Euro and British Pound seem to have significantly rebuilt their correlations to stock prices, hinting they would be in a position to benefit as well. Needless to say, a print that trumps forecasts can be expected to have the opposite effect, driving the greenback higher against the spectrum of its major counterparts as QE3 bets fade. A pick-up in the service-sector ISM employment index as well as yesterday’s firm ADP print seem to tilt surprise risk toward the latter scenario.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

AiG Performance of Construction Index (JUN)

34.8

-

34.7

23:50

JPY

Official Reserve Assets ($) (JUN)

1270.6B

-

1277.70

5:00

JPY

Coincident Index (MAY P)

95.8

95.9

97.0 (R+)

5:00

JPY

Leading Index (MAY P)

95.9

95.0

95.6

6:30

AUD

Foreign Reserves (A$) (JUN)

47.2B

-

53.2B

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

EUR

French Central Govt. Balance (€) (MAY)

-66.0B

-59.9B

Low

6:45

EUR

French Trade Balance (€) (MAY)

-5500M

-5801M

Low

7:00

CHF

Foreign Currency Reserves (JUN)

-

303.8B

Low

7:15

CHF

Consumer Price Index (YoY) (JUN)

-1.0%

-1.0%

Medium

7:15

CHF

Consumer Price Index (MoM) (JUN)

-0.2%

0.0%

Medium

7:15

CHF

CPI - EU Harmonised (MoM) (JUN)

-

-0.2%

Medium

7:15

CHF

CPI - EU Harmonised (YoY) (JUN)

-

-1.1%

Medium

8:30

GBP

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

-2.1%

-2.5%

Low

8:30

GBP

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

-2.2%

0.1%

Low

8:30

GBP

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

-0.2%

-0.2%

Medium

8:30

GBP

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

2.4%

2.8%

Medium

8:30

GBP

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

0.0%

0.0%

Low

8:30

GBP

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

2.0%

2.1%

Low

10:00

EUR

German Industrial Production (MoM) (MAY)

0.2%

-2.2%

Medium

10:00

EUR

German Industrial Production (YoY) (MAY)

-1.2%

-0.7%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2257

1.2499

GBPUSD

1.5426

1.5599

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya 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

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

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