Forex markets closed last week with a whimper rather than a bang, as the monthly Non Farm Payroll figures failed to excite, following the ADP release on Wednesday, which had suggested a surge in employment, that failed to materialise, with the number falling well short at 103,000 jobs created, against a market forecast of 159,000. Whilst this number came in lower than expected, the headline unemployment rate fell from 9.7% to 9.4% this time, and with average hourly earnings also falling by 0.1%, the data presented a mixed picture for the forex markets, and as a result with little reaction to the news.

The decline in the headline rate however was probably overstated, as the figures were balanced between a 297,000 gain in the household survey, but matched with a decline in the labour market of 260,000. The ADP data on Wednesday had suggested more positive news for the jobs market, but this report, which always precedes the NFP data two days later, has become increasingly unreliable in the last few months, and as such is rapidly falling out of favour amongst traders, despite the fact that the data is derived from payroll figures, and therefore expected to provide a more reliable guide. However, despite this mixed picture, the overall outlook is one which points to a recovery for the US economy, and we can therefore expect this trend of slow, but steady progress in the jobs market to continue over the next few months, as jobs prospects slowly improve.

The NFP release was followed shortly after by FED Chairman Ben Bernanake’s testimony, and once again this was expected to be of more interest to market participants, but his prepared speech and the subsequent question and answer session contained little in the way of surprises, and was duly absorbed as the forex markets closed in reflective mood. Overall, the US dollar closed higher once again on the dollar index daily chart against most major currencies, pushing above the key 81.00 level to close at 81.095 as we appoach the high of late November at 81.44, and following a week of strong gains for the dollar, a break above this price level should open the way for further sustained gains this week as head towards key technical resistance between 82.00 and 83.50. The biggest loser last week against the US dollar was of course the euro, which finally broke below the 200 day moving average, and now looks set to push lower this week once again.

Treasury markets were of course more influenced by Ben Bernanake’s statement, which was both doveish and sombre, with the 10 year yields falling by around 7 bps to trade at 3.32% late in the trading session, but still well above the recent lows of 3.25%, and whilst we can expect to see the usd strengthen further against the euro, it may well struggle against other currencies this week, particularly if yields fall further and bonds move accordingly. As a result we could see a mixed picture in the week ahead for US dollar majors and cross currency pairs. The key economic releases to watch for this week are as follows :

Monday

  • China – trade balance
  • Australia & New Zealand – November trade balance

Tuesday

  • France – business sentiment

Wednesday

  • US – import price index, weekly crude oil inventories, FED beige book
  • Germany – GDP, industrial production
  • UK – trade balance
  • Canada – new housing price index
  • Australia – home loans and investment lending

Thursday

  • China – CB leading economic index
  • Australia – employment report
  • Canada – international merchandise trade
  • Japan – machine orders,
  • Europe – ECB interest rate
  • UK – BOE interest rate
  • US – weekly jobless claims, trade balance, Bernanke speech

Friday

  • US – advanced retail sales, UoM report,
  • Europe – German CPI,
  • UK – PPI
  • Japan – CGPI