Yen Leads Risk-Driven Jobs Reaction

by Ashraf Laidi
Dec 5, 2008 16:22

Newbies to forex markets will have not stopped scratching their heads on the rallying dollar despite the loss of more than half a million US jobs in November. The rise in the dollar and the yen is widely a result of speculative FX flows into lower yielding currencies (JPY and USD) away from their higher yielding counterparts (see below for more detailed explanation).

Aside from the shocking 533K decline in US November payrolls (expectations -330K), the upward revisions in layoffs in prior months were just as horrendous, with September payrolls revised to -403K from initial -284K, and October revised to -320K from -240K, amounting to a total of 199k in upward revisions. Jan-Nov 2008 net layoffs have reached 1.708 million, and are slated to beat the 1.763 million total achied in 2001. The 0.2% increase in the unemployment rate to 6.7% was within expectations

Forex market reaction remains largely risk-driven as the Dow and S&P futures dropped by more than 2.5% before the open, with the USD and JPY knocking down their higher yielding counterparts (EUR, GBP, AUD, NZD and CAD) as speculative flows rush into the lower yielding currencies.

GOLD gets the worst of the USD rally, falling below $760/oz and eyeing the Nov 18 low of $731/oz. Main source of stability likely to be a recovery in equities, which could materialize during the beginning of Day 2 of Detroit's money-raising campaign from Congress.

GBP a major loser shedding over 2 cents to $1.4539 and inline to fall back to yesterday's latest 6 year lows at $1.4463. Although both EURUSD and GBPUSD are falling victim to the dollars risk-driven allure, euros declines remain more contained than cables, hence the recovery in EURGBP, which may regain 87 pence trend line resistance. Any recovery in US stocks is likely to boost GBPUSD and EURUSD back towards $1.4730 and $1.2750, while prolonged equity declines are seen extending the pairs towards $1.4530 and $1.2580.

USDJPY breaks under 92, eyeing the previously mentioned support of 91.60 , and may extend losses towards Octobers 15-year low of 90.84 later in the day after an intermediate bounce. Two hours from now emphasis will shift towards Day 2 of US Automakers Congressional Testimony , thus any signs of falling chances of a resolution could intensify Wall Streets sell-off and push bears to reclaim the 7,900K and 780 levels in the Dow and the S&P. 93.20 and 92.60 are increasingly acting as staunch barriers for any intermediate term recovery.

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