Dollar extends rally against majors in run up to key non-farm payrolls

US Dollar:

Overnight saw Asian equity markets trading in a mixed pattern as caution abounds ahead of the US Dec non-farm payrolls. Following a much better than expected ADP payrolls on Wednesday, Thursdays weekly claims were a touch higher than expected, sending US indices down 0.2% and benchmark bond yields down to 3.4%. Despite consensus NFP being revised up to 175k, some analysts do question the predicative ability of the ADP report. Currency majors have retained the week’s trend of dollar strength with GBP/USD testing the $1.54 han¬dle, EUR/USD briefly touching the Nov 30th ljaow of $1.2967, AUD/USD made new 2-week lows below $0.9920 on the aftermath of the Queensland flood, while USD/JPY saw the dollar make 2-week highs as well above Y83.50.

Data 13.30: Non-farm payrolls 175k from 39k, Unemployment Rate 9.7% from 9.8%. Speaker 14.30: Fed Chairman Bernanke Testifies

Pound

Sterling is finishing off the first trading week of 2011 mixed as cable continues the weeks trend of dollar strength and GBP/EUR rally's to test the 1.19 handle. Currency markets have been dollar led this week, with strong US economic data rallying the greenback across the board to push GBP/USD down towards the $1.54 handle. The pound didn't really get any help from UK data as yesterday’s weaker than expected services PMI numbers dis¬appointed, posting a number of 49.7. Below 50 indicates industry contraction and usually drags down the coun¬try’s currency. Where the pound did perform better was against the under fire euro, which came under huge selling pressure to push GBP/EUR up in sterling’s favour hitting the 1.19 handle. Looking ahead to today, cur¬rency markets are expected to trade sideways in anticipation of the key US nonfarm payrolls number due to be released at 13.30.
No major data

Euro:

The single currency can be forgiven for wishing away the first week of the year as the euro posted losses across the board. The main driver this week has been dollar strength which has pushed the single unit down further against its US cousin. This has come on top of the ongoing bearish view of the euro which has continued into 2011 after last years problems for the euro area. The worry in the near term now may focus on the ability of Spain to re-finance its debt, which saw some European countries struggle last year, namely Ireland and Greece. The euro has now fallen below the key $1.30 level against the dollar, and hit its lowest point of the week against sterling as we test the 0.84 handle.

Data 10.00: E/Zone Final GDP q/q 0.4% unchanged

General:

• Despite weaker than expected UK economic data, the pound has held up well against the Aussie dollar, more than can be said than the defensive effort of the Australian cricket team. The Queensland floods have taken their toll on the Aussie dollar and hurt the countries ability to export its key natural resources which power the Australian economy.

• Brazil has made a fresh attempt to keep the lid on its rising currency with new curbs on speculative trad¬ing designed to discourage ramping of the real against the US dollar.

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