Will NFP be a Non-Snooze Event?

Lets hope this market get to see some action with North American employment reports this morning. Watching paint dry in the Asian and Euro overnight shifts is officially boring. The overnight price action has not run away from us, as the EUR seems to have paused for breath following strong gains in the previous sessions. It’s not surprising to see the markets tread water ahead of payroll data, which is seen as the unofficial barometer for the worlds largest economy. However, Spain still remains at the forefront of investors minds as it has not officially requested a bailout. Markets half expected Spain to ask for financial aid from its Euro partners, which would trigger the start of the ECB’s OMT program, but so far, the Spanish government has stood firm. Some Spanish officials believe market conditions do not warrant a bailout request. It seems everyday brings something new, sometimes contradictory from politicians and because of this, event risk should remain heightened throughout the long US weekend.

Market consensus has NFP pegged at +118k in September after a disappointing August rise of +95k. This should not change the Fed’s assessment of the US economy. Sustained gains is on Bernanke’s agenda, ideally policy makers wish number is about +200k and above. Some analysts note that the markets stellar focus on labor data and QE has probably gone some ways to desensitize risk-sensitive currencies reaction to a sole jobs reports. If the data disappoints, EM and commodity bloc currencies are expected to lose ground, however, probably not as the same speed than they could have without an open-ended QE program in place. Overall, consensus still sees USDJPY to remain the purest of payroll trades, with soft data likely to push the pair lower and vice versa. Playing the EUR bet is certainly not as clean, the currency pair will be expected to trade higher on a weak print as markets increase expectations for further Fed asset buying. Watch equities reaction, sustained equity losses should eventually drag the EUR lower.

There is a twin event risk this morning for Canadian investors with jobs data in both Canada and the US now being reported in tandem. Market consensus is looking for a +10k print. The bullish market is certain to crank up demand for the loonie again if forecasts are accurate. Recent data, especially the Ivey PMI and GDP, have surprised to the upside, suggesting potential for a stronger-than-expected print today. However, do remember that last months zealous +34.3k surge was entirely from part-time employment, as full-time jobs contracted in August. To many, today’s employment composition will give a strong indication on how the Canadian economy is really doing. Recent currency consolidation has seen the CAD long positions pared, however, Governor Carneys hawkish tilt remains the most significant draw for the loonies in the current global easing environment.

As expected, the BoJ stood pat on its monetary policy, back to taking a ‘wait and see’ approach after the easing measures it took a couple of weeks ago. Speculators are looking at the USD/JPY play to remain the “purest” trade for the time being. JPY is expected to remain well supported as policy easing in the US, EU and AU compresses rate differentials. The BoJ has maintained its AP program at +Y80t, and kept its policy rate in the +0-0.1% range.

Greece remains the millstone around Europe’s neck. The country is expected to run out of cash next month if creditors do not grant the next installment of its aid package. Greece’s troika of creditors (IMF, ECB and EC) are in the country assessing the country’s progress in fulfilling the terms of it’s financial aid package. The IMF is reported as saying that they will not favor disbursing its share of the Greek bailout if the country’s debt is not deemed sustainable or if other creditors do not pledge to fill a financing gap in the aid package. While the fund is sticking to a target of 120% of GDP by 2020, the Greek government forecast this week that public debt will climb to 179.3% of GDP in 2013. No reported number is surprising when it comes to Greece. Let’s hope that other Euro periphery problems are a tad more transparent for the sake of the EUR.

Retail short EUR positions remain in play, despite not paring these position sizes at a more advantageous rate earlier this week. The retail sector remains at odds with the overall speculator positions and their direction. Currently being long the EUR will likely target the upper Bolli while prices continue to close above the 21-DMA. The day trade metrics continue to “soar” despite some intraday easing. For the time being, pullbacks remain rather limited as the market becomes nervous. Limited pullbacks are being viewed as an opportunity to go market long or pare unproductive current EUR trades.

Other Links:
Spain Confuses Market by Waiting for Bailout Request