â€˘ Yen: Lower as GDP slows
â€˘ Pound: Hovers near 2.03 awaiting NFP GDP estimate in line
â€˘ Euro: Holds 1.4600 as hawkish Trichet lends support
â€˘ US Dollar: all eyes on NFP
A typically quiet night in the currency markets ahead of the US Non Farm payrolls release due later in the day which should serve as the marquee event risk of the week. The price action is especially slow due to the absence of any meaningful economic data in Asia or Europe tonight and traders appear to be content to merely square up ahead of the North American session.
Wednesdayâ€™s ADP report shocked the market by suggesting that US payrolls may expand by as much as 200K in November. Given the massive amount of gloom and doom analysis surrounding the US economy an increase of such magnitude would surely silence the dollar bears who have been calling for an imminent start of a US recession. In fact as we posted in our forums Google trends indicates that concerns about a recession may be setting a double top in popular media which in turn may coincide with a topping out of dollar negative sentiment.
Greenback rally, however, was stopped cold yesterday after a decidedly hawkish press conference from ECB chief Jean Claude Trichet. The message from President Trichet was essentially, â€śDonâ€™t mess with us.â€ť Mr. Trichet focused squarely on price pressures burbling up in the EZ economy, ignoring the possible dangers of weak consumer spending, suggesting that the ECB was willing to buck the global monetary trend of easing and would hike rates if necessary in Q1. We continue to be skeptical of ECBâ€™s posture, believing that for the moment the bark of EZ monetary officials is bigger than their bite. Nevertheless, the starkly different approach of the two largest central banks to monetary policy continues to favor the euro and the pair may rise further if NFPâ€™s disappoint and bring back the talk of a 50bp cut in the Fed funds rate. For the time being the pair has found equilibrium at the 1.45-1.46 level but whether it makes another at 1.50 will likely depend on the outcome of US labor data today.