NFP is Dollar Key

Talking Points

 German Factory Orders
 EZ OECD Leading Index
 NFP is Dollar Key
 Wage gains matter as well

NFP is Dollar Key

After popping up to 1.2835 in the aftermath of the ECB announcement the EUR/USD spent most of the Asian and European sessions quietly consolidating around the 1.2800 level. Despite the absence of vigilance in his remarks, Mr. Trichets general tone in the post announcement conference was decidedly hawkish as he stated that the central bank will continue to progressively remove liquidity if EZ growth proceeds at the current pace. For the typically non-committal Mr. Trichet this statement was tantamount to announcing  that the ECB intends to take rates to 3.5% by years end.

On the economic front German Factory Orders and Euro-zone OECD indicator are due to report at 10:00 GMT with both expected to post better readings than the month prior. None of the European data of course will have more than a few minutes impact in FX trading today as all attention will turn to the most important release of the month US Non Farm payrolls - scheduled for 12:30 GMT.  The consensus  expectation   is for a print of 142K, but many analysts on the street are looking for number near the 100k level which would likely depress the chances of a Fed rate hike down to single digit possibilities. The key concern of the market is that the slowdown in the housing sector  which has been responsible for as much as 40% of allUS job generation over the past 4 years may be finally starting to have very adverse effects on the overall US employment market. With mortgage applications at four year lows and house builders warning of massive shortfalls in their revenue forecasts the prospects for a strong NFP number appear dim.

Yet,  market positioning may well be dollar bulls best friend today. With so much negative sentiment swirling across the dealing desks, an upside surprise in the employment data along with strong results in the month over month wage increases, could send the EUR/USD sharply lower as most market participants have already steeled themselves for a Fed pause. Should the NFP data prove more buoyant than forecast,  dollar bulls may enjoy a rally as most speculative euro longs will likely stampede for the exits tripping multiple stops along the way. However, if the report is as weak the whisper numbers suggest, the greenback could begin a protracted period of weakness as its primary benefit an ever rising interest rate yield will now disappear from the investment horizon.

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