Thursday, 6 Jan 2011

Dollar Advances Prior to Jobs Report

The US dollar continued to rise against the majors with sharp gains being booked against the euro as traders position themselves for tomorrow's non-farm payrolls report. A stronger dollar also fed into losses for crude oil.

On the day before the US releases the December jobs report, the greenback continued its post New Years bullish move, gaining ground versus the major currencies. The largest gains were booked against the euro and the pound. Traders were bidding the dollar higher following a weak British Services PMI and US weekly unemployment claims that were slightly worse than economists' expectations.

Near the end of the US trading session the EUR/USD was down sharply at 1.3010 after opening the day at 1.3139. The GBP/USD was trading lower at 1.5470 from its opening price of 1.5503. The JPY/USD was up at 83.33 but still within yesterday's trading range. The Swiss franc also stabilized, trading at its opening price of 0.9664, following a sharp appreciation in the price the previous two days.

Crude oil was down significantly as a strengthening dollar fueled the price declines. Spot crude oil finished the day down at $88.15 from $90.23

The post New Years trend is decisively in the favor of the dollar. However, risks do remain with the release of tomorrow's payrolls report. Economists are forecasting a strong report with new jobs coming in at 159k. Expectations will be high as the US has consistently put out improving economic numbers since November with the lone exception the November non-farms report.

Many large institutional market participants may be waiting for the outcome of the jobs report before entering into the market which could disrupt the post New Years dollar rally.

If the jobs report comes in near the upper range of market estimates the dollar buying should continue and traders will push the EUR/USD lower.

Near term support is found at the November low of 1.2970, followed by the September - October consolidation pattern at 1.2915. A breach below this level would bring the 61.8% Fib retracement into play from the June to November move. Resistance comes in at 1.3250.