FX Awaits the NFPs

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Market Drivers July 6th, 2012
All eyes on NFP with >100K expected
Legarde warns about slowing growth, GE IP much better at 1.6% vs. 0.2% eyed
Nikkei -0.65% Europe -0.47%
Oil at $85.80/bbl
Gold at $1594/oz.

Asia and Europe:
AUD AiG Performance of Construction Index 34.8 vs. 34.7
JPY Leading Index 95.9%
CHF CPI -0.3% vs -0.3%
EUR German Industrial Production 1.6% vs. 0.2%
GBP PPI -0.4% vs -0.2%

North America:
USD Change in Nonfarm Payrolls 8:30
USD Change in Private Payrolls 8:30
USD Unemployment Rate 8:30
USD Avg Hourly Earnings All Employees 8:30
UDS Underemployment Rate 8:30
CAD Unemployment Rate 8:30
CAD Net Change in Employment 8:30
CAD Full Time Employment Change 8:30
CAD Part Time Employment Change 8:30
CAD Participation Rate 8:30
CAD Building Permits 8:30
CAD Ivey PMI 10:00

It’s been a typically quiet night of trade ahead of the US NFP report due later today at 12:30 GMT. After yesterday’s better than expected ADP data and strong improvement in the ISM Services employment sub-component markets are primed for 100K or better number with top estimates now eyeing 130K-160K range. Ironically enough a very string number may prove negative for risk as it will diminish the prospect of additional Q E from the Fed. Therefore regardless of how we print, the post NFP trade today may be choppy as markets try to balance the value of the economic data versus its implications on monetary policy.

On the economic front the calendar was relatively quiet in Europe, but cable did get a bump from lower than expected UK PPI data. UK Output prices fell to their lowest level since 2009 as decline in oil prices continued to ease inflation concerns. UK PPI Output declined by -0.4% versus -0.2% eyed on a month over month basis while UK PPI Inputs tumbled to -2.2% versus -2.1% the month prior.

As the decline in in energy costs continues UK is finally able to lower its chronically high inflation rate allowing the Bank of England more maneuverability on the monetary front. In two weeks UK will report its CPI data and given the sharp pullback in wholesale prices it is likely that consumer inflation will decline below the key 3% level in June. Cable responded well to the news rising about 30 points in the aftermath of the release to1.5550 as currency traders welcomed the decline in price pressures which would allow the MPC to follow its accommodative monetary policy unimpeded helping risk appetite.

In Europe German Industrial Production rebounded jumping 1.6% versus 0.2% eyed after it cratered -2.2% the month prior. The report was a shred of good news amidst a sea of doom and gloom in the region and suggest that manufacturing production may have stabilized for the time being. The euro saw little reaction hugging its 1.2370-.12395 range for most of the night as traders squared up ahead of the NFPs.

If NFPs do print above forecast, the biggest beneficiary of that news is likely to be USD/JPY which could finally break above the key 80.00 level with conviction as US data improves and chance of QE diminish. Aussie could rally as well especially if equities finally lose their angst over the global economic slowdown and catch a bid into the week-end. However, if the data is dour it could unleash a massive selloff given the fact that US economy is now the last bastion of hope for the bulls.

Boris Schlossberg
Managing Director

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