Dollar Range Bound As Traders Fear Worse Than Forecast NFPs

Top Stories

• All eyes on NFP as euro, cable hold highs
• India unveils stimulus package
• Merrill says oil may hit $25/bbl
• Equity futures improve into early European trade
• Chinese stocks end positive for third day in a row
• Japanese PM Aso- BOJ could buy long dated JGBs
• Oil flounders at $44/bbl
• Gold quiet at $770/oz

Overnight Eco

• AUD AIG Construction Index32.0 vs. 36.4 last

Event Risk on Tap

• EUR German Factory Orders market looks at 0.2%
• CAD Employment Change -21k expected but may be worse given weak Ivey
• USD NFP -334K forecast but -400K key pivot
• USD Unemployment Rate 6.8%
• USD Average Hourly Earnings 0.2%

Price Action

• USD/JPY strongest anti-dollar all night long dropping below 9200 before bouncing slightly
• AUD/USD trades sideways all night long at 6450
• GBP/USD quiet but holds above 1.4700 into the NFPs
• EUR/USD hovers near 1.2800 as traders fear worse than expected NFPs

Dollar Range bound as Traders Fear Worse Than Forecast NFPs

A typical pre-NFP night in the currency market characterized by quiet, sideways price action as traders anxiously await the NFP figures due 13:30 GMT.The lack of directional movement tonight is exacerbated by the fact that the G-10 calendar is practically barren with only German Factory orders on the docket. The consensus expectations for NFPs are for -334K print which would already make today's number the worst in more than two decades. However, dealing desks are rife with rumors that the print today could exceed -400K in which case the greenback could come under further pressure post announcement.

One of the more interesting developments this week has been the decoupling of the risk aversion trade as EURUSD has gained strength despite yesterday's triple digit declines in the DJIA. Part of the reason may be due to the fact that the market is starting to chase yield once again as US 10 year bond approaches 2.5% and the euro remains the only G-4 currency with better than 200bp rate.

Yesterday's slightly hawkish press conference by Jean Claude Trichet in which he refused to pre-commit to any rate cuts may have given some speculators hope that EZ rates could remain 2% or better for most of 2009. We however think that this may be simply wishful thinking as EZ economy appears to be performing no better than US and ECB will have to lower rates eventually.Still the relative pace of interest rate declines in EZ remains the slowest amongst the majors and that fact alone could provide some support for the euro. Certainly the unit has performed well against the pound with the cross hitting fresh record highs above 8700.

The one currency that has continued tounambiguously strengthen throughout the week has been the yen. In tonight's trade USD/JPY even slipped below 9200 figure before recovering slightly. With G-10 universe moving inexorably towards ZIRP the carry trade holds little interest for the market and the yen continues to benefit from its unwind. Thus given the possibility of -400K or worse print in today's report the pair could s drop below 9200 once again and should the number shock with a greater than -500K job loss, USD/JPY 9000 could well be in sight.

FX Upcoming

Boris Schlossberg
http://www.gftforex.com

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