Non farm payrolls are the main focus today with distraction expected from Korean headlines

Before the release of non-farm payrolls data today, we get the latest reading from the Halifax house price index at 8am. Even a move below 0.8250 in EUR/GBP wasn’t enough to stop cable from a firm beating yesterday as dollar strength ruled the roost against all pairs in the G10 space. Are we starting to see a new trend form here? Strong US data benefited the dollar yesterday, whereas this is normally associated with ‘risk on‘, leading to strength in higher yielding currencies. Non-farm payrolls data today is about the best data to test this theory.

Yesterday’s ADP release of a whopping 325k has the market bulled up for an impressive reading of 155k today on non-farm payrolls but one should remember that the unemployment rate dropped to 8.6% last month mainly due to the drop in the participation rate so one should look for a higher reading on the unemployment rate as people return to the labour market looking for opportunities. We also have the Merkozy (Angela Merkel and Nickolas Sarkozy) meeting on the horizon but with European banks much in need of capital and euro rates heading south and economic data expected to weaken further, the 2010 low of 1.2584 is going to be in our scopes in the not too distant future.

Mixed fortunes for the yen, with USD/JPY climbing back above 77.00 on general dollar demand yet falling to a new low of 78.45. This prompted Japanese Finance Minister Azumi to replay his favourite message about ‘watching FX moves closely’ and adding that the euro’s decline is having a big impact on Japan’s exports. With rumours in the Asian session of an explosion at a North Korean nuclear facility triggering some knee jerk dollar safe haven buying it seems that with a new leader looking to build a quick reputation, this may be just the start of such market headlines. One must remember though that South Korea was very quick to state that the explosion news was completely false.