NFP: stocks could continue higher on any outcome, EUR

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The Japanese Yen is making a play at stealing today’s thunder from the release of US Non-Farm Payroll later this morning. The USD/JPY roared through the psychological 95.00 level overnight to trade at a high of 95.60 and is currently trading right below that level.

USD/JPY is at its highest level since August 2009. There is market speculation that an improving job market will give the Federal Reserve and opportunity to slow stimulus and with the Bank of Japan, under their new leadership, expecting to extend stimulus, this move was not as unexpected as many first thought.

The 95.50 level was a strong resistance point, and the break hasn’t propelled the currency pair much higher. There should be some consolidation at this point, with further resistance coming in at 95.75, then 96.00. Support for USD/JPY is at 95.20 and 95.00.

The last big news event of the week happens at 8:30 EST, when the US releases their February figure for Non-Farm Payroll and Unemployment. Economists originally expected the number to come in around 160,000 new jobs for February. However, after the ADP release on Wednesday showed a stronger than expected February gain and a strong revision to the January number, the is a growing consensus that this number could be in the 180,000-200,000 range. Adding to this train of thought was the fact that initial jobless claims released yesterday dropped to 340,000, moving the latest four week moving average below 350,000 to 349,000. This four week average is the best we have seen since early 2008.

See how to trade the Non-Farm Payrolls with EUR/USD.

Those of you who have been reading my commentaries for a while are aware of my distrust for this number, as there is a general tendency for it to be surprising when released. It seems to me that this number more than any fools traders more often than not. So I am a little less excited than most regarding this release. But, assuming we are in range of expectation, what will happen? Well, we’ve raised the bar on expectation, so a good number is now something above the 175,000 level. If this is the case, I’d expect to see the equity markets move higher because there is confidence in the economy. A bad number sees the equity market go higher because the FED will continue their stimulus efforts to prop up the economy. Either way, I see the DOW higher today. That trend will continue.

Currency markets are slightly different. While a higher DOW could prompt traders to add “risk” and push the EUR higher, I’m concerned about a further rise in the single currency since we did not see the follow through yesterday after ECB President Draghi commented that he expected the Eurozone to return to growth in 2014. One could argue there was a sufficient move after his remarks, but we did not get a continued move higher overnight. EUR resistance is at 1.3125, with a major resistance point at 1.3150. FX trader reaction to NFP will be really interesting to observe later.

Canadian job data is also due this morning. It is expected to show 7.800 growth in February and the unemployment rate should remain unchanged at 7.00%. USD/CAD strengthened earlier this week after the Bank of Canada policy turned neutral. USD/CAD is currently trading in the low 1.03‘s. Resistance is seen at 1.0340, with support at 1.0290.

So we wait for the 8:30 excitement. As a writer of commentary, I would be remiss without leaving you with a prediction for this number. Bear in mind, I am usually way off, but as the say, “ya gotta be in it to win it”. So, I expect February NFP t rise 204,000. We shall see.

Further reading: USD/JPY pushes higher – will it see profit taking on the Non-Farm Payrolls?

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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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