Euro Holds Ground – Could NFPs Miss?

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Market Drivers for December 6, 2013
Majors quiet ahead of NFP
Aussie flutters on Qantas downgrade
Nikkei 0.81% Europe .49%
Oil $97/bbl
Gold $1229/oz.

Europe and Asia:
AUD AIG Construction 55.2 vs. 54.4
EUR French Trade -4.7B vs. -5.1B
GBP Inflation expectations 3.6% vs. 3.2%

North America:
USD NFP 8:30
CAD Employment 8:30
USD U of M 10:00

It’s been a typically quiet pre-NFP session in the forex market with currencies tracing out very tight ranges in Asian and early European dealing ahead of the marquee US employment report that could be the key to future US monetary policy.

One of the more interesting aspects of this week’s trade has been the remarkable resilience of the EUR/USD which remains within striking distance of the yearly highs despite some the of the slowest growth in the G-10 universe. The pair no doubt has been boosted by the laissez faire attitude of the ECB which yesterday offered no new plans for monetary stimulus, was not especially concerned about the deflationary risks in the region and refused to jawbone the currency lower despite the fact that it is clearly having a negative impact on the export driven economies of the region.

As we’ve noted before the strength in the euro has been the result of investment flows as many global investor reallocate capital to the Eurozone in search of relative value in equities. Tonight’s strength however suggests that currency traders may be anticipating a lackluster NFP number. Although the ADP report printed much better than expected at 215K versus 172K – the data series is notoriously inaccurate in the short run, In fact ADP data is better at predicting the results one month forward as its methodology may be more sensitive than the BLS reports which are subject to large readjustments.

In contrast to the ADP the employment component of the ISM Services report saw a significant decline of 3.7 percent to 52.5 indicating that the pace of job growth in the crucial services sector may have slowed markedly in November. The markets are anticipating an 180K print with some eying the 200K mark as the key to securing a Fed taper of QE. if however the data misses – the prospect of a Fed taper in December or even January will begin to evaporate and the EUR/USD could continue its climb higher against much of the conventional wisdom of the market.

If however the NFP prints at better than 200K the change is sentiment towards and early taper could put a strong bid into the greenback especially against the yen where the pair has retraced some of its recent gains on concerns that the Fed may delay. A clear cut signal that the US economy continues to perform well on its own and may no longer require the massive monetary stimulus of QE could send USD/JPY through the 103.00 level and put it on track to challenge the yearly highs.

Boris Schlossberg
Managing Director

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