US Jobs and the dollar


USD: The market looks for a 190k rise in non-farm payrolls, with the unemployment rate holding steady at 7.7%.  Expect the dollar to strengthen on a firmer than expected number (see below for more), with the euro looking the more vulnerable in this scenario. See how to trade the NFP with EUR/USD.

CAD: Labour market data also released in Canada at the same time as the US.  The CAD has been performing well over the past month and another move below parity in USDCAD is not out of the question today if we see divergent trends in labour market developments (Canada improving, US lagging).

Idea of the Day

Towards the end of last year, one of the themes we were analysing was the change in correlations in FX markets, both between different currencies and also vs. other asset markets and indicators. This has been on-going this year and is worth looking at ahead of the US employment report today. The dollar’s correlation with the US economic data surprises (data stronger vs. expectations correlating with higher dollar) is the strongest since early 2010.  With the 3-mth correlation (using DXY index) at 0.54, this is the direct opposite of the inverse correlation evident in the middle of November. What this means is that a stronger reading on headline payrolls today should lead to a stronger dollar, especially against the euro where the market is likely short after the gain seen into yesterday’s close.

Latest FX News

GBP:  Gaining from the weaker dollar in the late US session, sending cable back above the 1.52 level, with EURGBP holding a lot steadier just below the 85.00 level.

JPY:  The Nikkei moving higher again overnight, up by more than 1.5%, with USDJPY touching the 97.00 briefly as both bask in the glow of yesterday’s announcements from the Bank of Japan.

EUR: A strong surge into the US close, EURUSD briefly touching the 1.2950 level before tailing off during the Asia session.

Further reading: Draghi Hints About a Rate Cut, Then Offers Strong Words – EUR/USD Plunges and Recovers

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