Markets look to US jobs report
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
The main focus of attention today will be the release of the US September non farm payrolls number with expectations fairly high that we could well see an improvement in jobs growth to around 115k after the disappointment of the August numbers to 96k.
While August?s weak number wasn?t necessarily the catalyst for last months bold move by the Fed to embark on its $40bn a month MBS program, it probably sealed the deal.
Worries about the impending fiscal cliff, a Chinese slowdown and a deteriorating European outlook also played a part, as well as a frustration that Fed measures are not filtering down into the economy, according to last nights minutes.
The problem the Fed has now is that it has pretty much shot its bolt and that if the jobs numbers continue to deteriorate, the most they can now do is increase the monthly amount of purchases, in the hope the more money they throw at the problem, the more likely it will have an effect.
There also appeared to be a certain amount of disquiet amongst other non voting Fed members apart from the lone dissenter on the voting committee Jeffrey Lacker. We have a fairly good idea of whom some of these members are, Charles Plosser being one, with the likelihood that the committee could become even more polarised if these new measures show no signs of improving the situation.
After the better than expected ADP numbers, expectations are for an improvement to 115k, with particular attention also on what any revision to the August number might be, while the unemployment rate is expected to rise to 8.2%.
Meanwhile back in Europe the final Q2 revision of Eurozone GDP is expected to be confirmed at -0.2%, while German factory orders for August are expected to fall 0.5%, which is likely to translate across negatively with respect to not only Germany?s Q3 growth numbers, but also Europe?s as well.
Spain continues to play its game of chicken with the market by insisting it does not need a bailout ?at all? according to finance minister De Guindos, after the country managed to sell another ?4bn worth of bonds yesterday, despite large hints from ECB President Draghi yesterday that they should consider asking for help, sooner rather than later, and that any conditions needn?t be onerous.
The Bank of Japan decided once again to adopt its tentative stance towards monetary policy by leaving rates unchanged as well as leaving its asset purchase program at Y80trn apparently impervious to the problems of Japanese exporters. With inflation remaining subdued it is difficult to make any sense of their caution stance.
EURUSD ? yesterday?s break above 1.2990 opens up a test of the September highs at 1.3175 and trend line resistance at the same level, from the 1.4940 highs. We also have resistance at 1.3040 which is 61.8% retracement of the down move from 1.3175 to 1.2805.
Any pullbacks need to stay above 1.2960 for this move to unfold, while the main support lies at the 200 day MA at 1.2825.
Only a move above 1.3240, targets 1.3495, the 50% retracement of the entire down move from 1.4940 to 1.2045.
GBPUSD ? yesterday?s pullback to 1.6200 keeps the downside risk intact, while above that the 1.6310 level remains the major resistance
Having carved out some support at 1.6060 this level needs to hold to prevent a deeper move towards 1.5915, 38.2% retracement of the up move from 1.5270.
It needs a move above resistance and last weeks high at 1.6310 to target a move towards 1.6590, last years August high.
EURGBP ? the euro has hit the 0.8050 area and this remains the next obstacle to be overcome to retest the September highs at 0.8115, and the 200 day MA. The 0.8000 area should now act as support while a break below retargets last week?s low at 0.7925, as well as trend line support from the 0.7755 lows at 0.7920, and 55 day MA.
USDJPY ? this week?s break through 78.20 brings a test of the trend line resistance at 78.90 from the 20 April highs at 81.80, into view, as well as the 200 day MA at 79.32.
Any weakness should find some support around 78.20 as well the 77.60 level.
The 200 day MA at 79.32 remains the main obstacle to a return towards the highs in August at 79.70.
Equity market calls
FTSE100 is expected to open 20 points higher at 5,848
DAX is expected to open 28 points higher at 7,333
CAC40 is expected to open18 points higher at 3,419