Dollar traders prepare for impact of Januarys non farm payrolls

US Dollar:

It’s that time again. January non-farm payrolls are due in the upcoming New York trading session; and as always the market eagerly awaits the data’s release. The relevance of the data as a timely measure of the overall gauge of health for the US economy has diminished significantly over the past year. Furthermore, even its role as catalyst for risk appetite has faded against a backdrop of frustratingly robust speculative inter-ests. Nevertheless, the potential for volatility and quick trading opportunities continues to draw the masses in. We could see the gravity of the event risk already weighing in on the currency market Thursday as activity levels receded. Though it is difficult to isolate and visualize, the dollar itself was little moved through the active ses¬sion. USDJPY’s temperate 65-point range and meagre 9-point day-over-day advance is a good reflection of the greenback itself. Note that this is very similar to the lack of direction and volatility from the S&P 500. Yet, some FX traders may be tempted to claim a high level of activity on the dollar’s part with reference to EURUSD or AUDUSD. Though, if we take a look across the euro and Aussie dollar-based crosses it quickly becomes obvi¬ous that the greenback’s performance was incidental.
DATA : Non farm employment change and Unemployment rate.

Pound:

The British Pound rallied for the fourth consecutive day, with the exchange rate advancing to a high of 1.6277, but the lack of momentum to test the November high (1.6298) could spur a short-term reversal in the sterling as it appears to be carving a double top in February. The GBP/USD popped higher overnight as the gauge for U.K. services increased to 54.5 in January from 49.7 in the previous month, but the exchange rate appears to be consolidating going into the North American trade as investors scale back their appetite for risk. As the relative strength index remains just shy of 70, we may see a correction play out going into the end of the week, but we should see the GBP/USD find support at former resistance around 1.6000. However, with the Bank of England scheduled to announce its interest rate decision next week, speculation for a rate hike later this year could prop up the exchange rate over the coming days.
DATA: Halifax HPI.

Euro:

Where the Portuguese bond auction Wednesday was a disappointment for euro activity, the ECB rate decision would encourage significant turnover. However, here again, the market reaction was not encouraged by the statement or President Trichet’s commentary, but rather the deviation of the outcome from the consensus expectations. At the last rate decision, the policy authority took a slightly more hawkish tone where the market was expecting absolutely no change. Therefore, this time around, the anticipation was for another small step towards that inevitable rate hike; but instead, the commentary was nearly a word-for-word recitation of the last meeting’s rhetoric. Over the final trading session of this week, expectations are once again elevated. EU offi¬cials are meeting to discuss expanding the region’s bailout efforts. Discord is expected with Germany holding firm against government bond purchases; but confirmation of such will offer another reason to lighten up on the euro.
DATA : No major data due to be released today.

General:
Interest rates are always a hot topic for FX traders; and that fact was certainly confirmed with the Australian dollar’s reaction to the RBA’s updated forecasts in its Monetary Policy Statement. While the bank kept its infla-tion projections through 2011 and 2012 unchanged; this year’s growth benchmark was raised from 3.5 to 4.25 percent. This is an optimistic view given the outlook for housing and emerging markets.

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