US Payrolls well below reference point

EUR USD (1.2790)
After a quiet European morning session on the last trading day of the week, the release of the US non-farm payrolls quickly changed the outlook for the euro. In a market where liquidity was rather on the thin side, it immediately got out of the blocks and skyrocketed to a 1.2865 peak. However, some position squaring forced it to give up all its gains and in the FE this morning it was exactly where it started.

Some short-term traders tried the euro from the long side, but this has already been the case on Thursday, particularly after the Trichet comments. However, some of these positions were sold out on the ADP estimate of a 368,000 payrolls report. No matter which way one looks at it, the number was out in the market and marked a significant shift higher in the reference point. In addition, this also served as an anchor for traders.

To give more ‘credibility’ to this number some financial institutions even adjusted their estimates accordingly. In many ways the ADP number did nothing more, but to set the market up for disappointment as it was indeed very high and anything below this, or even in line with consensus, would have been perceived as a bad number.

This is also exactly what happened when the payrolls number was released. Nevertheless, when the euro edged lower again, traders were quick to replace an outright bad employment number with what they referred to as more of a ‘mixed’ bag. The euro’s setback has afforded us the opportunity to establish a fresh bullish strategy for target 1.2935/40. To the downside, we expect to come across support at 1.2760/70, which also serves as our relatively tight risklimit.


USD JPY (113.60)
Unconfirmed rumours about the Peoples Bank of China planning an emergency meeting on Friday, served as a signal to some traders that the renminbi would be revalued again. Many market participants believe that this will automatically lead to the appreciation of Asian currencies across the board.

Nevertheless, these rumours where neither confirmed nor denied, but as traders were whetting an appetite for the yen, this did not really seem to matter. In addition, traders are still in BoJ rate hike watching mood and simply ignored the Fukui attempt on Friday to clutter the Government’s raised projections for economic growth with the North Korean issue.

Japanese machinery orders were up this morning and on the back of this the dollar dipped to 113.60. We expect the current wave of weakness to extent to 113.10 and thereafter to 112.70. These levels also mark the best downside supports. Overhead, we reckon with supply at 114.50 and at 114.90.

EUR JPY (145.40)
The cross slipped lower to 145.35 this morning. This brought it just a whisker away from one of our best support at 145.25/30 (critical). Thereafter, weakness can extend to the second demand point at 142.90. On the upside, we expect to run into resistances at 146.70 and at 147.30.

EUR GBP (0.6920)
Even though the euro is a tad lower, it still drifts around in neutral territory. Any move down, will be met by the first support at 0.6895 and then at 0.6855. For today, we reckon with supply lurking at 0.6945 and 0.6980.