Daily Report: Focus Turns to Non-Farm Payroll as Post G20 Volatility Fades

The forex markets are rather steady into European session as investors calm down from volatility driven by ECB and G20 in the last 24 hours. After the G20 Summit in London, the leaders showed unity and pledged a "global plan for recovery in developed countries as well as in emerging markets". The plan includes repairing the financial system, promoting global trade and investment, rejecting protectionism and building an "inclusive, green and sustainable recovery. Unprecedented amount of additional $1.1T funds are committed to back the words, including tripling of IMS's resources to $750b, new allocation of $250b Special Drawing Rights and $100b lending by World Bank and other institutions and $250b to support trade finance. Concerning the financial market, stricter rules will be placed on hedge fund and other financial institutions. A new Financial Stability Board will be established, uniting regulators and IMF to provide early warnings of potential threats. China as well as other developing countries will become more influential. At the same time, impact from the US will be reduced.

Markets focus now turns to job report from US. Non-farm payrolls are anticipated to have reduced -654K in March (Feb: -651K), bringing the unemployment rate up to 8.5% (Feb: 8.1%) as increase in both initial and continuous claims in previous weeks signaled further deterioration in the job market. The ADP employment report, released on Wednesday, showed -742k in the private job markets in March and argues that today's NFP might post downside surprise. Average hourly earnings should have risen 0.2% mom during the month, same level as in February. Another focus is ISM non-manufacturing index, which probably rose slightly to 42 in March from 41.6 in February. Despite the improvement, the reading still suggested economy is in contraction mode. Later today, Fed Chairman Ben Bernanke will speak about the Fed's balance sheet at 1630 GMT.

To be released in European session, Germany's import index is expected to have slid -0.3% mom in March from -0.5% in January. On annual basis, the reading should have plunged -7.8% yoy during the month, another deepest fall since February 1999, following a -5.4% drop in the previous month. In Switzerland CPI probably stayed flat in March, after a modest monthly gain of +0.2% in February, as energy prices continued to drop while consumer spending remained weak. On annual basis, the gauge might have dropped -0.1%, compared with an increase of +0.2% in the previous month. UK's service PMI should have improved for the 4th consecutive month to 43.5 in March from 43.2 in February and outlook for services sector looks healthier than manufacturing sector. In the Eurozone and Germany, final readings on service PMI were probably revised slightly upward to 40.1(from 39.2) and 41.7 (from 41.3), respectively.

The Japanese yen remains the biggest loser this week following sharp improvement in risk appetite. Dollar, to a lesser extent, remains pressured too. Aussie, Kiwi and Sterling are the strongest currencies this week and look set to extend recent gains against both the greenback and yen. EUro on the other hand is rather mixed. Looking at the dollar index, fall from 86.13 is still in progress as long as 85.08 support turned resistance holds. Nevertheless, we're still favoring the bullish case that decline from 89.62 has bottomed out at 82.63. Hence, current pull back from 86.13, though deep, is still expected to be contained above 882.63 low and bring rally resumption. Above 85.08 will signal that such pull back has completed and flip intraday bias back to the upside. However, a break below 82.63 low will invalidate this case and put focus to 81/82 support zone (61.8% retracement of 77.69 to 89.62 at 82.24 and 38.2% retracement of 70.70 to 89.62 at 82.39 as well as long term rising trend line support at 81.83) for defending the long term up trend.

Note: The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union. Officials from Spain and the Netherlands were also present.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 143.55; (P) 145.23; (R1) 148.19; More

GBP/JPY's rise from 135.71 extends further to as high as 147.82 today so far and at this point, intraday bias remains on the upside as long as 145.15 minor support holds. As discussed before, rise from 131.43, which is treated as part of the corrective rally that started at 118.18, is expected extends towards 100% projection of 118.81 to 141.74 from 131.43 at 154.36 next. On the downside, below 145.14 will turn intraday outlook neutral first and bring pull back. But downside should be contained above 140.54 support and bring rally resumption.

In the bigger picture, GBP/JPY's correction from 118.81 is still in progress to correct the five wave sequence from 215.87 to 118.81. As long as 135.71 support holds, such rise from 118.81 is viewed as having the first wave completed at 141.74, second at 131.43. Rise from 131.43 is treated as the third wave and should target fibo resistance levels of 154.36 and 155.88 (38.2% retracement of 215.87 to 118.81) before completion. However, note that break of 135.71 will indicate that such rise has completed earlier than we thought and will bring deeper fall to retest 118.81 instead. Nevertheless, note that sustained break of 118.81 is still needed to confirm resumption of long term down trend. Otherwise, consolidation from 118.81 might still extend further with prospect of another rise before completion.

Forex News Digest

• Yen Advances, Reversing Drop Versus Euro, on Speculation Exporters Bought
• Australian, New Zealand Dollars Advance to Highest Since January on G-20
• Asian Currencies Rise for Fifth Week as G-20 Pledges $1 Trillion Stimulus
• G-20 Fashions New World Order With Smaller Role for U.S., More Regulation
• World-Beating Australian Bonds Attract Daiwa to Government Debt Auctions

More Forex News

Economic Indicators Update

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box