Reply #19: dollar watch

[UpInArms]

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How Will the US Dollar React to Non-Farm Payrolls?

http://www.dailyfx.com/story/bio1/How_Will_the_US_Dollar_1196981942559.html

It has been an active trading week in the currency market and things are only expected to get even more interesting with tomorrow’s November non-farm payrolls report. According to our Employment Preview, the arguments are skewed heavily in favor of weak job growth causing everyone from traders to analysts to second guess their original estimates. In fact, many professional analysts have even been spooked into revising their official forecasts. Although everyone may be skeptical of the ADP report, they realize that they cannot dismiss it. As traders, we should first recognize the fact that the dollar has been strengthening for the better part of this week. Although this may be due to external factors such as central bank meetings and stock market strength, it means that traders have not been selling dollars ahead of the release. According to our latest FXCM SSI index, speculative traders are still net short Euros. The forecast for non-farm payrolls is 80k, but we suspect that the whisper number is closer to 100-125k. Therefore a dollar rally on the heels of a strong release could be limited unless we see job growth in excess of 200k. This has become a market of pessimists which means that even if we get a strong non-farm payrolls number, they will be skeptical about whether the number is real and if that strength can be repeated the following month. If we get a bad number however, expect mayhem in the markets because the revisions in payroll forecasts and the recent rally in the US dollar indicates that traders are not expecting payroll growth to be at or below 80k. The reference point here is clear and we could even see dollar weakness if payrolls are 100k or less. With the Bank of England surprising the market with an interest rate cut today, a better reactive trade may be to short the GBPUSD over the EURUSD. If it is a weak number, the hawkish comments from ECB President Trichet this morning makes the EURUSD a better trade.

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Dollar - Will NFP Confirm ADP?

http://www.dailyfx.com/story/bio2/Dollar___Will_NFP_Confirm_1197023834853.html

A typically quiet night in the currency markets ahead of the US Non Farm payrolls release due later in the day which should serve as the marquee event risk of the week. The price action is especially slow due to the absence of any meaningful economic data in Asia or Europe tonight and traders appear to be content to merely square up ahead of the North American session.

Wednesday’s ADP report shocked the market by suggesting that US payrolls may expand by as much as 200K in November. Given the massive amount of gloom and doom analysis surrounding the US economy an increase of such magnitude would surely silence the dollar bears who have been calling for an imminent start of a US recession. In fact as we posted in our forums Google trends indicates that concerns about a recession may be setting a double top in popular media which in turn may coincide with a topping out of dollar negative sentiment.

Greenback rally, however, was stopped cold yesterday after a decidedly hawkish press conference from ECB chief Jean Claude Trichet. The message from President Trichet was essentially, “Don’t mess with us.” Mr. Trichet focused squarely on price pressures burbling up in the EZ economy, ignoring the possible dangers of weak consumer spending, suggesting that the ECB was willing to buck the global monetary trend of easing and would hike rates if necessary in Q1. We continue to be skeptical of ECB’s posture, believing that for the moment the bark of EZ monetary officials is bigger than their bite. Nevertheless, the starkly different approach of the two largest central banks to monetary policy continues to favor the euro and the pair may rise further if NFP’s disappoint and bring back the talk of a 50bp cut in the Fed funds rate. For the time being the pair has found equilibrium at the 1.45-1.46 level but whether it makes another at 1.50 will likely depend on the outcome of US labor data today.

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