Dollar, Yen Torn Between US Jobs Data and Year-End Capital Flows

The US Dollar and the Japanese Yen may find themselves torn between competing influences from November’s US payrolls data and year-end capital flows.

Talking Points:

  • US Dollar Needs Outsized Beat on Payrolls Print to Refuel Upward Drive
  • Yen May Rise After Overnight Drop on Year-End Flows After NFP Report
  • German Factory Orders, Eurozone GDP Revision Unlikely to Stir the Euro

A relatively muted economic calendar in European trading hours puts the spotlight on US Employment figures. The report is set to show nonfarm payrolls rose 230,000 in November, marking a modest pickup from October’s 214,000 increase. Leading survey reports indicate manufacturing employment grew at the second-fastest rate since January 2013 last month. Meanwhile, service-sector job creation advanced at the strongest pace since June. Such rosy readings may be foreshadowing an upside surprise, a result that may boost the US Dollar amid firming Fed policy bets.

Absent a substantial deviation from expectations however, year-end capital flows may overtake price action. The priced-in US policy outlook (as reflected in OIS pricing) has mirrored broad-based stability in US economic news-flow (per data from Citigroup) since early- to mid-September. A payrolls print maintaining this status quo may open the door for a round of profit-taking on the year’s top trends as markets settle in for the on-coming winter holiday lull. Such a dynamic could bode ill for the greenback as well as risk appetite at large, hinting the Japanese Yen may have scope to recover.

October’s German Factory Orders figures and a revised set of third-quarter Eurozone GDP numbers are unlikely to produce a substantive response from the Euroconsidering their limited implications for near-term ECB monetary policy. Central bank President Mario Draghi confirmed prior hints from other policymakers suggesting the next key inflection point will probably occur toward the end of the first quarter of 2015 at a press conference yesterday. In the meantime, officials are likely to remain in wait-and-see mode as they assess the potency of a medley of stimulus measures unveiled over recent months.

The Yen declined in overnight trade as Japan’s benchmark Nikkei 225 index moved higher, sapping demand for the safe-haven currency. The British Pound came under pressure after a joint report from the Recruitment and Employment Confederation (REC), KPMG and Markit Economics on UK employment showed permanent placements rose at the slowest pace in 18 months. The New Zealand Dollar declined alongside the island nation’s front-end bond yields, pointing to ebbing rate hike expectations as the catalyst behind the selloff. A clear-cut trigger for dampening RBNZ policy bets was not apparent however.

Critical Levels
CCY Supp 3 Supp 2 Supp 1 Pivot Point Res 1 Res 2 Res 3
EURUSD 1.2020 1.2196 1.2287 1.2372 1.2463 1.2548 1.2724
GBPUSD 1.5517 1.5599 1.5636 1.5681 1.5718 1.5763 1.5845

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