USD Slumps, Eyes Jobs

The greenback slumped against the majors on the heels of softer US economic data, ahead of Friday¡¯s key jobs report. Weekly jobless claims crept above the 400k-level to 407k, jumping from 366k a week earlier. Although the services ISM figure for March edged out consensus forecasts to 49.6 and improving from 49.3, it still remains beneath the 50-level that distinguishes expansion from contraction.

Traders will turn their attention to March non-farm payrolls, estimated to post a loss of 60k jobs, and compared with 65k lost in February. The March unemployment rate is also seen deteriorating, climbing to 5.0% versus 4.8% a month earlier.

USD Resilient to Dismal Jobs

The major currency pairs stabilized from a choppy morning session, prompted by the release of the March employment report. The dollar initially sold-off following the dismal data, falling to 1.5773 against the euro and 2.0049 versus the sterling – but has since recovered with much of the gloom already priced into the currency.

The March jobs report revealed a third monthly contraction in non-farm payrolls, down by 80k versus an upwardly revised decline of 76k in February – its worst reading since March 2003. The unemployment rate for March was also worst than expectations, rising to 5.1% -- its highest level since 2005 and up from 4.8% a month earlier. The lackluster labor report reinforces our view for a 50-basis point rate cut from the FOMC when it meets to deliberate policy at the end of the month. The major equity bourses shrugged off the report, with the Dow Jones and Nasdaq both up slightly on the day.

Canada’s labor report revealed similar deterioration, with the unemployment rate in March climbing to 6.0% versus 5.8% a month earlier. The March employment change number fell to 14.6k, down considerably from the previous month at 43.3k.

Forex Video - US Dollar Dips As NFPs Post Worst Reading in 5 Years, BOE Could Weigh on GBP/USD Next Week

Written by Terri Belkas and John Kicklighter, Currency Analysts

· US dollar ends day slightly lower against the euro and yen as US non-farm payrolls disappoint.
· Big event risk looms next week from BOE, ECB rate decision on Thursday, US calendar relatively thin.

Stories to watch on DailyFX

· What did the US non-farm payrolls report tell us? Check out our NFP Instant Insight
· Carry trades remain at risk, and according to Technical Strategist Jamie Saettele, the EUR/JPY Decline is Far From Over

We love feedback! Send any comments or suggestions to tbelkas@dailyfx.com or jkicklighter@dailyfx.com

EURO / Yen decline is far from over

The EURJPY is 1,000 pips from its August low near 149. The strong rally has some proclaiming that the uptrend is intact and that the EURJPY is headed to new highs. On the contrary, the technical picture suggests that upside potential is limited and that the decline is far from over.

In January, the EURJPY broke a 7+ year supporting trendline. The break of the trendline indicates that the bull trend is over and that lower prices are highly probable. We’ll zoom in on the following charts in order to gauge when the fast part of the decline will begin. Eventually, we expect the EURJPY to return to the major congestion area that is circled on the chart.

We are treating the top at 168.94 as the end of wave 3 (specifically, wave 3 of larger 5), the sharp 3 wave drop to 149.25 as a 4th wave and the rally to 167.64 as a truncated 5th wave. The reason for this is that the advance to 167.64 has all the characteristics of a 5th wave; dividing into 5 waves itself, an extended 3rd wave, etc. The best count then going forward treats the decline from 167.64 as a series of 1st and 2nd waves.

As mentioned, we view the drop from 167.64 as a series of 1st and 2nd waves (following a major truncated 5th wave). However, the EURJPY has yet to accelerate lower in a 3rd of a 3rd wave as expected. As such, a breach of 159.20 seems likely in order to complete wave ii as a complex (w-x-y) correction. Resistance should be strong near the 78.6% of 166.65-152.11 at 163.54.

For more on trends in ‘risk’, see Risk Trends.

Forex News: Australian Retail Sales and German Factory Orders Unexpectedly Fall

Fundamental Headlines

• AUDUSD – Australian Retail Sales unexpectedly declined 0.1% in February, falling for a second month. A 12 year high in interest rates, record energy and food costs, rising inflation and a slowing global economy has weigh on consumer confidence and spending. The RBA which has keep its benchmark rate unchanged this week may be at an end to its tightening policy. For more news and resources, visit our Australian Dollar Currency Room.
• CHFUSD – Swiss inflation rose to its fastest pace in 14 years rising 0.3% from February bring the year-over-year figure to 2.6%. Record oils prices and rising food costs is making it tougher for Swiss households to heat their homes and feed their families. The SNB has kept rates at a six year high of 2.75% in an effort to battle inflation, which may become difficult to maintain with the global economy slumping. For more news and resources, visit our Swiss Franc Currency Room.
• EURUSD – German factory orders fell by 0.5% in February. Despite the decline the year-over year numbers improved to 9.0% from a revised 8.9% the month prior. The majority of the decline was a result of automobile orders declining 1.4%, as global demand suffers. The ECB may be hard pressed going forward to refrain from lowering interest rates, despite their inflation concerns Discuss the topic and your trade ideas in the EUR/USD Forum.

Dollar Drops Ahead of NFP as Traders Fear The Worst

Talking Points
• Japanese Yen: quite near 102.50 in pre-NFP trade
• Euro: Rises above 1.5700 on widespread dollar selling
• Pound: Above 2.0000 on dollar selling
• US Dollar: NFP on tap

In contrast to most pre-NFP nights when price usually remains subdued, the dollar saw some strong volatility at the start of the European session losing ground against both the euro and the pound as traders became increasingly concerned with the deteriorating US labor conditions. The EURUSD cleared the 1.5700 level while pound traded above the psychologically important 2.0000 figure for the first time this week.

Up until yesterday morning the dollar looked to be on the way to staging a strong counter trend rally, with most market players beginning to focus on the softening economic situation across the pond where data this week indicated that both EZ and UK are beginning to feel the impact of global slowdown in growth. However, yesterday’s horrid US weekly jobless claims which printed above the key 400K level for the first time since hurricane Katrina completely changed the sentiment of the market.

Since the release of the jobless claims report at 12:30 GMT yesterday both euro and the pound have risen nearly 200 points on fears that US labor situation is deteriorating rapidly. With consumer debt at record highs, traders fear that a massive loss of jobs and income could send US reeling into a severe recession as consumers become unable to service their obligations and demand for goods and services contracts significantly.

Thursday’s jobless number which is not included in this months NFP release, may explain the surprising action of the night, with some market players already discounting today’s report as they anticipate much worse numbers in the future. As our colleague Kathy Lien wrote yesterday in, Non-Farm Payrolls: Dollar Outlook Hinges Upon the Degree of Job Losses “Over the past 3 decades, the US economy has gone through 3 recessions. In each of those 3 recessions, there was a string of job losses that lasted for a minimum of 10 months. Many people argue that the current downturn in growth could be more severe than the recession in the early 2000s due to the triple blow of a housing crisis, credit crunch and skyrocketing commodity prices. If this is true, we will see far more than 3 consecutive months of job losses. Also expect the level of job losses to climb because in each of the past 3recessions, the largest single month job loss was more than 300k! In this context, a 100k drop over the next few months is not only realistic but practically guaranteed.”

Despite the dour mood, a better than expected number should provide the greenback with at least a temporary boost as both sentiment and positioning has become considerably lopsided towards the euro. If however the number prints at –100k or worse, al hope for a dollar rally will evaporate and the pair may try to make a run for the new highs once again.

Forex News: European Retail Sales Falter, As U.S. Ills and Inflation Filter Throughout Global Economy.

Fundamental Headlines

• NZDUSD – New Zealand’s commodity price index rose to a record high, increasing 2% from February. Seven of the thirteen commodities measured rose bring the year to date increase to 27%. The increasing prices has been a source of growth for the commodity rich country, but fears are increasing that the bubble may burst bringing a halt to the country’s growth.
• GBPUSD – The U.K. services purchasing manger's index fell to 52.1 in March from 54.0 the month the prior, the lowest level in four months. Companies continue to watch their margins get squeezed, as they are unable to pass on rising input costs to consumers. Tight credit markets are also weighing on growth as banks have been reluctant to pass on the recent interest rate cuts, resulting in rising credit costs which are eating further into profits. Speculation continues to grow that the BoE will have to cut rates by 50 points to help lower credit costs. Discuss the topic and your trade ideas in the GBP/USD Forum.
• EURUSD – Retail sales in Europe unexpectedly fell 0.2% in February, led by a 3.1% decline in Germany. Rising inflation stoked by increasing energy and food costs have eroded consumer’s purchasing power, leading to food, drink and tobacco sales falling for a fourth straight month. The ECB has maintained their benchmark interest rate in an attempt to reign in inflation, but as the economy continues to suffer and consumer confidence wanes, the increasing downside risks may force them to consider cutting. Discuss the topic and your trade ideas in the EUR/USD Forum.