Who Wins If NFP Misses?

Posted on

Market Drivers January 9, 2015

UK data mixed but cable rises above 5100
ECB says it has not made any decision on QE
Nikkei 0.18% Europe -0.84%
Oil $48/bbl
Gold $1210/oz.

Europe and Asia:
AUD Retail Sales 0.1% vs. 0.3%
EUR GE IP -0.1% vs. 0.4%
EUR GE TB 17.7B vs. 19.4B
EUR UK IP -0.1%

North America:
USD NFP 8:30
CAD Unemployment 8:30

The FX markets remained relatively quiet ahead of the key US Non-Farm Payroll report later today with many dealing desks distracted by the ongoing drama in France where the terrorists appear to have taken hostages as authorities were involved in a tense standoff.

Meanwhile on the economic front the data out of Europe was decidedly mixed with German Industrial Production slipping by -0,1% versus 0.2% eyed while the Trade Balance shrunk to 17.7B from 19.4B projected. The EUR/USD however found a mild bid rising above the 1.1800 level on reports that the ECB may not yet be ready to implement full QE.

In UK the Manufacturing Production and Industrial Production were also mixed. with IP slipping -0.1% versus 0.2% expected and prior months revised downward to -0.3% from -0.1% initially reported. The news confirms that in the final months of the year the pan-European economy went into a stall and growth has slowed markedly across the region. Nevertheless, cable bounced in the aftermath of the news rising to 1.5145 as the numbers were perhaps less dire than the markets expected.

Generally the pre-NFP bias appears to be slanted a bit against the dollar with markets anticipating that the estimates may be too optimistic. Although the ADP data earlier in the week showed that labor growth maintained a steady pace rising go 241K jobs all other US data was decidedly soft with both ISM surveys missing their mark. The employment component in ISM Non-Manufacturing which tends to be the most accurate forecaster of the NFPs was also a bit lower.

If the NFPs do miss their mark- the surprise could provide an excuse for a short covering rally in EUR/USD with the pair possibly rebounding towards the 1.1800 handle. However, the move will likely be nothing more than a dead cat bounce as the news from the region remains dire. The much bigger beneficiary of the any weakness in US data is likely to be Aussie which continues to show strength on relative basis. The pair is benefiting from renewed carry trade flows as investors seek yield in a near zero environment in the G-10 universe. That is likely to push EUR/AUD below the key 1.4500 mark if NFPs come in weaker than expected.

USD/JPY could also see some selling flows if the NFPs print sub 200K level as that will once again cast doubt on the idea of Fed normalization move by mid year The pair has been capped by the 120.00 level and could slip to test 118.00 on any negative surprise. Any blowout to the upside however, could see it test the recent highs at 121.00

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *