Dollar Finds a Footing Ahead of NFP

Middling economic data persisted in the US but markets showed some signs of stabilization ahead of non-farm payrolls. The Swiss franc was the top performer while the pound lagged after the BOE. Australian retail sales are up next. In the Premium Insights, the EURUSD long was closed with a 273-pip gain, while a new GBP trade was added shortly before the BoE announcement. At this point, 5 of 6 existing trades are currently in the green.

The US dollar fell hard in early New York trading and it looked like an extension of yesterday's rout. The Dec factory orders report fell 2.9% vs 2.8% expected and it was compounded by a 0.5 pp downward revision to the prior report. Initial jobless claims were at 285K compared to 278K expected.

The high of the day in EUR/USD was immediately after the data at 1.1238 but then the dollar bleeding stopped. The euro fell back to 1.1160 before finishing at 1.1200.

The Fed's Kaplan underscored the recent tentative tone, saying the Fed wants to normalize but it can't be forced. He also fretted about tightening financial conditions. The dollar barely recovered against the yen throughout the day but it made progress against CAD, climbing 100 pips from the lows. It was aided by a 59-cent drop in oil despite the usual OPEC jawboning and headlines about Syria.

The pound was extremely volatile. It fell hard on the 9-0 vote to hold rates as McCafferty abandoned his hawkish stance. It soon recovered as Carney talked up the prospect of rate hikes (eventually) but then fell back on weaker growth forecasts.

Position squaring ahead of non-farm payrolls might have also helped the dollar, and broader markets, stabilize. The consensus is for 190K new jobs but the momentum is a bit lower with some forecasts revised lower after the weak ISM non-manufacturing report, notably Goldman taking its call to 170K from 190K.

In any case, it's tough to see how the jobs report could be a game-changer for the Fed or the market.

What may end up being a bigger factor for markets is the Australian Dec retail sales report. It's expected to rise 0.4% and will be released at the same time as the RBA Statement on Monetary Policy, which is a more detailed breakdown of the RBA thinking than the monetary policy decision.

Canadian jobs will also be released on Friday.

Earlier in the week, we floated the idea that perhaps the developed commodity bloc is a more resilient to the bust than the market believes because of 15 years of savings, ample space for fiscal stimulus and the FX moves. Friday's data will help begin to answer that question.