EUR Bears Lighten Ahead of NFP

NFP is the granddaddy of all economic releases and the layup to this morning announcement has consisted of a month of “forgettable” trading. One of theses day’s a payroll release will manage to break the camels back, however, today is not considered to be one of them (famous last words). Before yesterday’ weekly claims, a spat of three consecutive releases had the market inching towards the undesirable upper echelons just below the psychological +400k print and an investor beginning to worry that tad bit more.Yesterday’s claims print (+365k vs. +392k) managed to break that undesirable trend and at the same time seems to be appeasing some of that lost faith that occurred after the dismal private ADP report the day before (+119k vs. +178k).

The swing of this morning’s US release predictions vary from a small negative to a healthy creation of +200k new jobs with an unemployment rate continuing to hover around +8.2%. However, the consensus seems to be settling for a number just north of +100k, confirming that the recovery of the US labor market remains sluggish. Today’s release is not expected to break short-term market perception of a softer result rekindling the QE3 debate. Either way, investors expect the ‘single’ currency to extend its biggest weekly decline in a month amid concern leadership changes at elections in France and Greece this weekend could derail the region’s austerity efforts.

The accompanying Open Position ratio chart continues to tell a compelling story. Just over +57% are happy remaining short EUR’s which is off from this week’s high print of +63%. A portion of the market seems content paring their short position at current levels as liquidity risk lies ahead next Monday, a day after the weekend elections. Remember, London will be on holiday, creating a liquidity vacuum. Their non-market participation will only exacerbate some of the early moves in the exchange rate, at least until North America joins the fray!

Weighing into the EUR negative sentiment this morning is the Spanish and Italian services sector contracting further last month and causing “anxiety about the state of the Euro-zones economy.” This morning’s final PMI reading confirms that the Spanish services sector has managed to contract for the tenth-straight month. This decline comes hot on the heels on data earlier this week confirming that the country has technically reentered a recession in Q1. The Italians are no better, their services PMI index fell to its lowest level in three-years. Both of these economies are suffering from a ‘marked cyclical slowdown’ and it is only natural to believe that tighter fiscal conditions add further pressure on domestic demand. This will eventually translate into further deterioration in Q2.

The EUR bears are backing a Holland win in the French second round this Sunday, resulting in investor concerns about the ability of Euro-zone officials implementing the agreed upon fiscal measures having an impact on a timely basis. The EUR bears should be looking towards the upcoming Irish Euro referendum. Current Irish government intimidating tactics to squeeze out a yes vote is making the referendum personal, not something that the pro-Europeans would be hoping for.

Liquidity will not last long today either. Many will want to shut up shop early, unless of course the market can come up with a complete ‘outlier’ NFP result.

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