Yen and Franc Broadly Lower on Risk Appetite, Non-Farm Payrolls, Canadian Job and Eurozone CPI Eyed

Japanese Yen and Swiss Franc are trading as the weakest major currencies for the week on strong global risk appetite. Nikkei is extending recent rally in Asian session, after hitting 26 year high yesterday. DOW, S&P 500 and NASDAQ also closed at record highs again overnight, following the record high in FTSE. Commodity currencies and Euro are the main beneficiary in the current market sentiments. Dollar, on the other hand, stays generally weak except versus Yen and Franc. Non-farm payroll report, in particular wage data, will be key to whether the greenback can stage a turnaround. In addition, Canadian job data and Eurozone CPI will also be closely watched.

Wage growth is the key in NFP

Economists are expecting non-farm payrolls report to show 189k growth in December, unemployment rate to stay at 4.1%. Other employment related data released were solid. ADP reported showed stellar 250k growth in private sector jobs. Employment component of ISM manufacturing dropped from 59.7 to 57.0, but that’s a healthy level. Meanwhile, the four week moving average of initial jobless claims was at 241.75k last week. It’s more likely than not that NFP will show healthy job growth in December. The main question remains on wages. Average hourly earnings are expected to rise 0.3% mom, which leaves some room for downside surprise.

ISM services, factory orders and trade balance will also be released in the US.

Canadian job data also a focus

Canadian job data will also be clearly watched. Markets are expecting 0k job growth in December, after the surprisingly strong 79.5k growth in November. Unemployment rate is expected to climb back by 0.1% to 6.0%. Canadian Dollar has been notably strong in recent weeks as economic data revived speculations of another BoC rate hike in January. Also, recent surge in oil price also helped the Loonie. WTI crude oil extended recent bullish run and surges through 62 handle overnight. We’d probably get another up-leg in the Loonie should job data surprises on the upside today.

Trade balance and Ivey PMI will also be released from Canada.

Eurozone CPI as highlight of European session

Eurozone inflation data will be another key event to watch. Headline CPI is expected to slow by 0.1% to 1.4% yoy in December. Core CPI, on the other hand, is expected to accelerate 0.1% to 1.0% yoy. PPI is expected to be unchanged at 2.5% yoy. Eurozone will release retail PMI and German retail sales. Swiss Foreign currency reserves is also featured in European session.

Elsewhere

From Australia, trade balance unexpectedly turn into AUD -0.63b deficit in November, much worse than expectation of AUD 0.55b surplus. Japan monetary base rose 11.2% yoy in December. UK BRC shop price index dropped -0.6% yoy in December.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2462; (P) 1.2508; (R1) 1.2534; More….

USD/CAD’s decline resumed after brief consolidation and reaches as low as 1.2480 so far. Intraday bias is back on the downside. Current fall from 1.2919 should target 61.8% retracement of 1.2061 to 1.2919 at 1.2389. We’ll look for bottoming signal below there. On the upside, break of 1.2554 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, we’re still favoring the case that USD/CAD has defended 50% retracement of 0.9406 (2011 low) to 1.4689 (2016 high) at 1.2048. And with 1.2048 intact, we’d favor the case that fall from 1.4689 is a correction. With that in mind, fall from 1.2919 is viewed as a correction. Hence, we’re not anticipating a break of 1.2061 low. In the long run, USD/CAD should have another medium term rise to take on 38.2% retracement of 1.4689 to 1.2061 at 1.3065.

Economic Indicators Update