New York Open: Sentiment and The USD Gain Amid Positive Employment Data

spiked higher after a better than expected December employment report. The change in NFP came in at 200K (cons. 155K), private payrolls gained 212K (cons. 178K) and the unemployment rate surprisingly declined to 8.5% from 8.6% (cons. 8.7%). Stock markets in Europe are currently higher and U.S. equity futures are to the upside. Yield spreads in Europe are mixed to relatively flat and Treasury yields are higher indicating that sentiment is rising moderately. The dollar’s gains are coming more on the back of positive U.S. economic data rather than the overall risk environment. The dollar index is approaching long term horizontal resistance around the 81.30/40 level which were highs back in Jan. ’11 and Nov. ’10.

• EUR weaker against all of its major counterparts (except the GBP) as the region’s economic data continues to come in weak. German factory orders fell by more than anticipated in Nov. with a decline of -4.3% y/y (cons. -1.2) and -4.8% m/m (cons. -1.8) while EZ retail sales in Nov. fell -0.8% m/m (cons. -0.4) and -2.5% y/y (cons. -0.9). EUR/USD remained under pressure and saw session lows of around 1.2725.

• GBP declining across the board following soft housing data with the Dec. Halifax house price falling by -0.9% m/m. European concerns are also weighing on the pound. Technically, GBP/USD was rejected from the daily Tenkan line which is currently around the 1.5525 level. On a shorter term basis, the pair looks to have broken the base of a bear flag which can be seen on hourly charts. GBP/JPY is trading towards the bottom of its recent range and sees the January lows of just below the 119.00 figure as the key downside pivot.

• JPY trading mixed against the G10 currencies – higher against the AUD, CAD, CHF, EUR and GBP while lower against the NZD, NOK, SEK and USD. There was no economic data of note out of Japan overnight and the Nikkei 225 fell by about -1.16% on the session. USD/JPY is retesting the 100-day SMA which held as resistance yesterday and will be a pivotal level on a daily closing basis. EUR/JPY is grinding lowed and broke below short term support around the 98.50 zone.

• CAD softer after a surprising uptick in the Dec. unemployment rate (7.5% from 7.4%) and a weaker than expected change in employment (17.5K vs. exp 20.0K). Against the buck, the CAD weakened to test the 21-day SMA around the 1.0240 zone which looks to have capped the day’s highs so far. EUR/CAD briefly tested below the key 1.30 big figure which is likely to be pivotal moving forward.

• CHF broadly weaker as CPI figures showed continued deflation. Swiss Dec. CPI dropped by -0.2% m/m (prior -0.2%) and -0.7% y/y (prior -0.5%). The presence of deflation increases the risk of further measures from the SNB. Speculation of additional easing has weighed on the franc with USD/CHF rising to 11-month highs. Technically, the pair looks set to close above the weekly ichimoku cloud for the first time since mid-2010.