Rain Soaked NFP to Save EURO?

Forget the US Cliff. The currency everyone knows as the single unit, the EUR, has been dealing with it’s own cliff crisis ever since Draghi’s no-rate change ECB press conference yesterday. The market has seen very heavy EUR/USD volumes traded, the most since the beginning of August, the day apparently the summer doldrums began. The EUR’s death spiral was prompted by the ECB’s gloomy economic outlook presented yesterday, and after the Bundesbank cut its German growth forecast for this and next year. Germany is not immune from their member states debt crisis-in fact the country is in danger of sinking into ‘own’ recession over the coming winter months. The rise in EUR trading interest is in danger of marking the start of the December doldrums.

The market is currently adopting a cautious stance ahead of North American employment reports later this morning. Today’s NFP will be keenly watched, being the last key data report ahead of next weeks FOMC meeting. Dealers now expect the Fed to announce outright monthly purchases of +$45b in Treasury’s, in addition to existing operations, to help lift the US economy.

Analysts expect non-farm payroll growth to slow to +80k, well below the three-month average of +170k. This final estimate takes into consideration a substantial hurricane impact. The market will look to discount a rain soaked final print because of the Hurricane Sandy distortions. Within the details, the unemployment rate has a danger of ticking a tad higher to +8%. Even to use yesterday’s weekly claims as a correlation proxy for a final NFP print this time of year is rather difficult, as year-end construction and agriculture sectors distort the numbers with planned layoffs. Capital markets dominant focus remains the US Fiscal Cliff. Unless NFP serves up a wild final print this morning, investors will wait for further US Budget deficit rhetoric for market guidance.

North of the US border to Canada, its largest trading partner, the market is expecting different fortunes for its employment scenario. Many analysts are bullish and are looking for a Canadian upside surprise for their own employment numbers. Currently, the market is looking at a +25k November print. For a country a tenth the size of the US population, extrapolating, that’s impressive. The previous month saw weakness or flat readings in both agriculture and utilities. Because of this, investors should be reading beyond the headline print and notice the number of hours worked, it should give investors a better understanding for the loonie direction. The unemployment rate is to remain the status quo of +7.4%.

Sterling has come under pressure outright after weaker than expected Industrial Production numbers for October were released. Everyone has understood that Q4 was going to be weak and had been expecting data to be moving in that direction. Still, IP data came in very weak at -0.8% compared to +0.7% that was expected. Adding insult was the previous September print being revised lower to -2.1% from -1.7%. This is further proof of what may be in store from the BoE. It keeps active market expectations that the ‘Old Lady’ can adjust policy towards delivering further QE. However, the misnomer remains the UK inflation outlook. The pickup in inflation expectations (5-year record +3.6%) will not be helping policy makers. The MPC believes that they have inflation under control; however, the rate pause is proof that policy makers will not be taking chances. The question is whether QE comes before Governor Carney arrives?

There has been no let up in peripheral Euro-zone spreads widening (Spain/Italy out +8bp). This bias has been the key driver of the single currency’s weakness over the past 24-hours. After filling mostly stop-losses orders in the over-night session, the bear sellers have momentarily backed off as decent EUR bids have appeared ahead of a market printing a new EUR handle below 1.29. US Non-farm payrolls event risk is probably the biggest factors currently handcuffing this bear market. Real money seems to prefer to sell EUR’s outright and against yen for better yield.

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