Reply #12: daily dollar watch [View All]

[UpInArms]

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 86.01 Change +0.12 (+0.14%)

Dollars Ease Into NFPs

http://www.dailyfx.com/story/dailyfx_reports/daily_brief/Dollars_Ease_Into_NFPs_1160130481844.html

Trading is predictably range bound ahead of US NFP’s due 12:30 GMT later today with EUR/USD trading slightly below 1.2700 while USD/JPY has risen once again above the 118.00 figure. Yen’s weakness is due in part to lackluster readings from the index of Coincident indicators which printed at 77.8% below the forecast of 88.9% while the LEI component registered a gain of 20% against 10% expected. The currency was also weighed down by remarks from new economics Minister Ito who stated that yen weakness is supporting the Japanese economy. Mr. Ito’s words were taken by the market as a signal that Japanese authorities are unconcerned about yen’ recent decline against both the euro and the dollar and are therefore unlikely to actively intervene in the market to manage its movements. Finally, the geo-political risks of North Korea’s nuclear test scheduled for this week-end also sparked speculative flows out of the yen as traders preferred to stand aside until North Korea completes its exercise. We continue to believe that once the latest dramatics from North Korea are over, the markets will refocus on relative valuations. To that end, we do not believe that European officials will be nearly as nonchalant about yen’s decline against the euro as their Japanese counterparts. If the EUR/JPY once again lodges above the 150 level, the Europeans are likely to escalate their rhetoric significantly. With global currency exchange imbalances now wildly favoring Japanese businesses the other G-3 players will not tolerate the situation for long and therefore USD/JPY risk lies to the topside rather than the downside.

Meanwhile, the marquee event of the day is US NFP’s. However, the key to the report may not lie with the jobs number, but rather with average hourly earnings reading. With unemployment rate at a modest 4.7%, wage growth becomes far more critical to future health of the US economy especially in light of the fact that housing which has been a major contributor to US consumer spending in the form of Mortgage Equity Extraction is no longer an easy source of funds. Thus, assuming that the NFP print within a few thousand jobs of the 100K barrier, the direction in the EUR/USD for the rest of the day may well be driven by the subcomponents of the report rather than the headline number.

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Will Payrolls Matter for the US Dollar?

http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/Will_Payrolls_Matter_for_the_1160081745183.html

US Dollar



The big question tomorrow is not whether payrolls will come out over or under but whether it will come out significantly away from the market’s forecast to cause a meaningful reaction in the US dollar. We, like most traders are hoping for a big divergence since the quiet range trading in the major currency pairs has lasted too long that it has become painful. Taking a look at what we call the leading indicators for payrolls, the odds are more in favor of a weaker release over a stronger one (see our special NFP Preview report on www.dailyfx.com for more details). Yet with the short term sentiment in the market at the moment more pro dollar than anti dollar, this suggests that the market is banking on a number that will still indicate decent growth in the US economy. The Federal Reserve is far from raising interest rates which means that a strong number between 120 and 150 will probably only lead to a dollar rally that tests the currency’s recent highs against the Euro (1.2625) and the Japanese Yen (118.40). Further strength beyond that may be difficult. On the other hand, the market is waiting for a sign that could push the Fed to cut interest rates sooner rather than later. They do not expect to see that tomorrow, which is why the dollar is holding on strong. However if payrolls sink below 100k, we could see a sharp dollar sell-off that has the possibility of continuing onto the summer’s low. Either way, we are just hoping for a big move that can set the tone for fourth quarter trading. Meanwhile we want to point out a story in the FT today about Vega Asset Management, which we mentioned yesterday. The latest report indicates that the hedge fund’s assets are now down to $1 billion from a high of $12 billion. The meltdown of hedge funds is a big reason why we believe that despite what Bernanke and Kohn said yesterday, the Federal Reserve is leaning far closer to an interest rate cut than a rate hike at this point.

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