NFP to Give us QE3?

Was Mario Super? Has he been able to save his credibility? The ECB delivered what was expected in their appropriately leaked rumors. How else are they going to manage any potential fallout unless they also coordinate the rumors? The ECB program or OMT is positive for the peripheries, but again does little to change the overall growth outlook. Even thought its bid for now, the market remains outright bearish of the single currency despite Draghi and company’s latest innovative subtle surprise. Why? Sovereign default possibilities remain a real concern. With the futures market pricing in further easing to support growth in the periphery, these regional hotspots are expected to be subjected to renewed bouts of stress as weak growth, again forecasted by policy makers, and resistance to austerity measures and results, will result in missed budget targets. Not much has changed for now, apart from the ECB’s growth targets, the noise has just got much louder.

This week will finally end with the grandaddy of all economic indicators, NFP in a few hours. Despite US claims providing a positive surprise yesterday, todays payroll expectation were not revised. Market consensus is for around +130k, with an unchanged unemployment rate at +8.3%. Whatever the outcome, this morning’s print will prove decisive for next weeks upcoming FOMC meeting. A weak surprise would likely enhance expectations for additional stimulus somewhat encouraged by Helicopter Ben’s dovish remarks at Jackson Hole. Even with a weaker print, in this environment risk will be supported to a degree. A strong reading may be capable of doing the exact opposite. The market may see unwinding of certain risk positions, allowing some profit to be taken off the table. Currently investors are leaning towards QE3 being announced next week, especially after JH and a decisive ECB. The “big” dollar can expect to outperform both the EUR and JPY on a strong NFP print as QE expectations become diminished.

The US’s largest trading partner Canada, will be releasing its employment report at the same time. Gone are the days when the loonie would not trade its own release until we got the NFP print as well. The market is looking for a much better showing this time around. Investors anticipate a +10k headline print, one month after a dismal -30.4k decline. The week closes out with the Canadian Ivey PMI, with market consensus set for a decline from 62.8 to 59.0. As noted by many, any downside surprises and Governor Carney, last of the remaining hawkish Cbanks, will not be acting on BoC tightening rhetoric of late. The loonie is too strong and the BoC will not want to be seen supporting it as such elevated levels and especially more so if the Fed eases or introduces QE3. Carney does not want or need to get ahead of the curve as CAD/US spreads would become too rich.

German IP is aiding the EUR on the London/New York handover, after rising more than expected in July and reversing the prior months decline. It climbed +1.3% on the month, beating the +0.2% rise forecasted. June was also revised up to show a drop of -0.4% rather than the -0.9% decline initially announced. This data is proof that Germany is far from been down and out. It’s a sign of strong resilience by the country’s key manufacturing sector despite the Euro-zones ongoing debt crisis. Data early showed that both exports and imports both rose slightly in July, again reversing declines in the previous month. The German economy is still the largest and strongest in the region, officially rising +0.2% in Q2 while the Euro-zone’s economy shrank by -0.2%. Europe still has her crutch for now.

It’s no fun to be squeezed out, and we have see this happen to many weak EUR shorts in the past 24-hours. If you are not going to be squeezed why not sell some more? If you liked been short at 1.26 then you got to love it at these elevated prices? That is what the retail sector is telling us as they are willing sellers of the single unit on upticks. The techies managed to get themselves long after breaking the old-treble top resistance of 1.2638-45, looking for gains to 1.2780 which is ahead of the 1.2810 (61.8% retracement 1.3284-1.2042 down leg). This is a big psychological level, through here and we should the beginning of a mass exodus. The 30-day bollie-band is pointing north. Ouch!

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Will ‘Super’ Mario be able to save the EURO?

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