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05/12/2014: How the markets are set up moving into Non-farm Payrolls


It’s Non-farm Payrolls in just under an hour’s time. The consensus expectation is that 230,000 jobs were added in November which would be an 10th consecutive month above 200,000 (which is seen by some as a watershed the denotes the economy actually creating jobs). For my part, look at the ADP report and the fact that weekly claims have been slightly higher in recent weeks, and on a quick and dirty expectation I think that Payrolls will come in just shy at 219,000.

NFP

More important than the payrolls figure though will be the Average Weekly Earnings growth which is expected to improve to +0.2% this months (an annualised +2.1%). This is the important factor to watch out for in the report as it is data that the Fed will be watching, with wage growth a key component for deciding on its monetary tightening path.

Looking at the forex markets moving into the report, the dollar is once more having a strong day, trading higher against all major pairs (with the exception of sterling which has bounced back this morning). Perhaps it is as much a reaction to the rumours overnight that Draghi and the ECB are actually looking to further loosen monetary policy in January. Equity markets are all strongly higher in Europe in response (in all likelihood it is probably a combination of the two).

The euro is lower and is now over 100 pips down from the reaction high yesterday afternoon following the initial disappointment of Mario Draghi’s press conference. I really like how this one is playing out with the descending triangle and in fact, up until now it has gone as I thought with a rally on a Draghi disappointment subsequently being sold into. The descending triangle remains intact and the (initial) downside target of $1.2070 remains on over the coming month. The caveat would be a big miss on payrolls, but even then I would bide my time and look to sell into any rally that starts to find a ceiling once again.

The strength in Dollar/Yen has been unbelievable in recent weeks and if anything the move over the past couple of days is now accelerating higher. There is a minor level of intraday support now at 120 but it is possible that this one has gone already. The next resistance (if you can call it that from 2007) comes in at big figure levels at 121 and 122.

Interestingly also today, the gold price is falling away. I have been watching the $1200 level which has acted as a pivot level in recent weeks, whilst in recent days it has been supportive. The weakness in gold this morning looks to be in anticipation of a strong payrolls report, with $1200 having been breached. The next level to look out for now is at $1191.86 which has been the reaction low since Monday’s spike to $1221. If $1191.86 is now breached it would open the $1180.70 key long term pivot level again.

Equity markets have been intriguing in their movement in recent days, spiking around with moves higher and lower. For now the bulls are fighting back after yesterday’s losses. However let’s not get carried away yet. The bearish patterns left by the potentially false upside break yesterday are still intact. It needs a move above 10,084 for the corrective signals to be aborted. Given that the DAX is struggling to break back above the psychological 10,000 level this morning, it would certainly need a strong payrolls report to drive this move today.


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