There is not a lot to talk about ahead of the European open, with the markets locked in some tight consolidation over the past several hours and seemingly content on waiting for the big release later today in the form of US non-farm payrolls.

Currencies had been decently buying in Thursday trade, with the Euro exchange rate being well propped by some upbeat comments from ECB President Trichet who said that the recent economy had been better than expected, and that he did not expect to see a double dip scenario.

In a world where all of the major currencies trade relatively unchanged from their respective closes on Thursday, the Australian Dollar is the relative underperformer, with “relative” the key word as it only trades lower to this point by some 0.30% against the buck.

Meanwhile, traders should continue to keep a close eye on price action in the better bid Yen and Swiss Franc, with both currencies still trading near their recent highs against the US Dollars. Elsewhere, according to a report in the China Securities Journal, China’s foreign exchange reserves are roughly allocated to 66% USD, 26% EUR, 5% GBP, and 3% JPY.

This is always an important statistic, with China being the largest holder of foreign exchange reserves in the world. Looking ahead, the key risk for the day comes in the form of the US non-farm payrolls (-105k expected) release due at 12:30GMT.

As things have been correlating (more difficult to predict of late), an upside surprise in the data will likely result in USD, Yen and Swiss Franc selling in favor of broader currency gains as market price in risk and increased prospects for a sustainable global recovery.

However, a let-down in the number will most likely have the opposite impact, with currencies coming under pressure against the USD, Swissie and Japanese Yen on the demand for lower yielding and safe-haven securities. In this scenario, we see the Yen benefiting the least, and the Swissie potentially benefiting the most as traders start to move away from long Yen positions in favor of a sounder safe haven play in the Swiss Franc.

The Swiss economy has been looking significantly better than Japan’s and this makes the Franc a safer play. It is also worth noting that liquidity is expected to dry up rapidly following the release of US data as traders head for the exits to take in their final chance of sunshine for the long holiday weekend.

The European economic calendar needs to be looked at before we get to US NFPs, and things kick off with Swiss CPI (0.0% expected) due at 7:15GMT.

German services PMI (58.5 expected), Eurozone composite PMI (56.1 expected) and services PMI (55.6 expected) are then out at 7:55GMT and 8:00GMT respectively. Then at 8:30GMT, UK services PMI (52.9 expected) and official reserves are due. Eurozone retail sales (0.2% expected) cap things off at 9:00GMT.

For the full story please visit www.dailyfx.com

 

Bye for Now

 

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