Mid-Day Report: Risk Aversion to Dominate after Exceptionally Poor Job Report from US and Canada

Risk aversion is set to dominate the final session in the week after exceptionally poor employment report from US and Canada. Non-farm payroll report showed US economy lose -533k jobs in Nov, much worse than expectation of -340k, largest contraction in 34 years since 1974. Oct's number was revised further down from -240k to -329k. Unemployment rate climbed from 6.5% to 6.7%, hitting the highest level since 1993. This was the 11th consecutive month of contraction in payrolls and indeed, there is no signal month of expansion this year. Yen is noticeably higher across the board after the release on anticipation of lower open in the US stock markets. While USD/JPY should continues its slide, dollar could gains against commodity currencies on risk aversion.

Canadian dollar tumbles sharply after the release of much worse than expected employment report. After two months of upside surprise, the job market in Canada shrank sharply by losing -70.6k jobs in November, largest fall since 1982. Unemployment rate climbed from 6.2% to 6.3%, below expectation of 6.4%. However that was only due to -0.3% fall in the labor force size. The Canadian dollar is additional hit by weakness in crude oil which tales out 43 level today.

Germany factory orders dropped sharply by -6.1% mom, -17.5% yoy in Oct, much worse than expectation of 0.4% mom and -12.1% yoy. Bundesbank said in the semi-annual macroeconomic projections that inflation in Germany could turn negative by mid 2009, unemployment rate could reach 8.1% and GDP is expected to contract -0.8%.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 91.70; (P) 92.58; (R1) 93.09; More.

USD/JPY dives to as low as 91.59 in early US session and further decline is still expected to retest 90.92 low. Sustained break there will confirm that medium term fall from 110.66 has resumed However, note that the lack of impulsive structure of the fall from 100.54 so far is still arguing that it might be part of the consolidation that started at 90.92. Above 93.46 will turn intraday outlook neutral first. Further break of 95.74 resistance will indicate that fall from 100.54 has possibly completed. The corrective structure in turn suggests that consolidation from 90.92 is still in progress and stronger rally should be seen to retest 100.54 before completion.

In the bigger picture, as long as 103.06 cluster resistance (61.8% retracement of 110.66 to 90.92 at 103.12) holds, medium term outlook remains bearish. Prior break of 95.77 low confirms that whole down trend from 124.13 has resumed and should target 100% projection of 124.13 to 95.77 from 110.66 at 82.3 next. Also, note that the current development clears out the long term picture too. Price actions that started from 79.75 (95 low) has completed in form of a triangle that ended with five waves to 124.13. In other words fall from 124.13 is just part of an even larger scale down trend which could extend further to retest 79.75 low.

On the upside, sustained break of 103.06 cluster resistance will firstly argue that fall from 110.66 has completed. Secondly, it will also argue that a medium term low is in place at 90.92 and outlook will be turned neutral with focus back to 110.66 high.

Forex News Digest

• U.S. November Nonfarm Payrolls Plummet 530k, Jobless Rate Rises to 6.7%
• Canada Sheds 70,600 Jobs in November
• German CPI Could Turn Negative in Mid-2009, GDP to Contract 0.8%, Says Bundesbank
• Weakening Domestic, Foreign Demand Push German Factory Orders Down Further

More Forex News

Economic Indicators Update

For Crude Oil and Gold analysis, click here

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