Waiting On NFP

Waiting On NFP


FX trading was subdued in the Asia session as markets awaited critical US payroll data due later today. However, risk sentiment was marginally supported by further signs that the Chinese economy is stabilizing. In addition, China will release a batch of economic data including industrial output over the weekend. Based on the recent string of solid data which provided evidence of a solid recovery in China, more good news will support regional risk correlated trades. USDJPY started Asian session around 82.40 after recovering from deep EURJPY-led selloff earlier.

However, USDJPY quickly traded to 82.56 before traders paired back bets. Overall trading volumes were thin ahead of the US non-farm payroll data as investors shifted into wait and see mode. The Bloomberg expectation is for NFP to come in around 90k, any significant lower deviation will intensify expectations that the Fed will expand QE efforts and weigh on USDJPY. We are not factoring in ADP as the new methodology is yet unproven but other survey such as Richmond, Chicago and Dallas Fed have shown labor market improvement. While manufacturing ISM showed a contraction and that the negative effects of Sandy are still being disputed. It is widely expected that at the upcoming December FOMC meeting, many believe that the Fed will convert its purchases of $45bn per month in long-term Treasury securities into open-ended purchases.

EURUSD still is slightly damaged due to yesterday's ECB meeting, yet we suspect that 1.2950 (key fibo ) support will hold. M. Draghi gave EUR bulls a clear wake-up call that all is not well in the Eurozone. Draghi provide a gloomy growth forecast for 2013, revealing that rate cuts were discussed ("There was a wide discussion but in the end the prevailing consensus was to leave the interest rates unchanged") and tempered expectations of the OMT being used to narrow yield spreads.

That said, we suspect that heading into the new year, the focus will be less about Europe and more about the US fiscal cliff (giving EURUSD room to maneuver higher). As for today, it's all about NFP so right now we wait.