What Do NFPs Tomorrow Mean For The Dollar?

By Michael Boutros, Currency Analyst

The greenback reversedcourse in North American trade after three consecutive days ofsharp declines with the Dow Jones FXCM Dollar Index (Ticker: US Dollar) closing well off itshighs for a modest advance of just 0.17%. The reprieve in dollarselling came as broader risk appetite diminished ahead of keyemployment data out of the US tomorrow. Mixed economic data out ofthe US this morning contributed to the lackluster performance instocks with the Dow and the S&P advancing 0.21% and 0.19%,while the NASDAQ managed to stay in the black with an advance of0.22%.The dollar held abovethe 9830 level noted in yesterday’s USD Trading report as risk currenciespared advances from earlier in the week. Daily interim supportholds here with topside targets eyed at 9900 and the 23.6%Fibonacci extension taken from the June 2010 and November2010 crests at 9970. Note that the index currently rests betweenthe 20 and 50-day moving averages at 9858 and 9820 respectivelywith a flattening RSI suggesting the dollarmay be poised for a breakout. A topside break of RSI resistancewould further support topside moves in the greenback. An hourly chart showsthe index holding within the confines of the descending channelwhich has been compromised twice already since the start of theweek. The dollar continues to straddle the 50% Fibonacci extensiontaken from the August 1st and October 27th troughs at 9850 withsubsequent floors seen at 9800 and the 38.2% extension at 9754. Abreech above channel resistance coupled with an RSI break abovetrendline resistance eyes topside targets at 9900, the 61.8%extension at 9946, and the 10,000 level.The greenback advancedagainst three of the four component currencies highlighted by a0.54% advance against the Australian dollar. The aussie’sdecline comes on the heels of the largest three day advance in overthree years as traders unwound risk-on trades ahead of major USevent risk tomorrow. The euro is the top performer of the lot andhas remained surprisingly resilient with a fractional advance ofjust 0.10% amid a quiet session in New York. Next week will be acrucial one for the single currency with the ECB rate decision andthe EU summit on tap. As noted in today’s Winners / Losers report the summit willbe paramount for the euro with German Chancellor Angela Merkel andFrench President Nicolas Sarkozy expected to reveal a new proposalon a so-called euro zone overhaul. The sterling and the yen wereboth marginally lower on the day as the battered dollar struggledto recover from the massive sell-off seen yesterday.Traders will be eyeingkey economic data tomorrow highlighted by November non-farm payrolls and the unemploymentrate. Consensus estimates call for employment in the world’slargest economy to increase by 125K, up from a previous print of80K, while the unemployment rate is expected to hold at 9.0%. Theimplications for the print are profound with a faster pace of jobgrowth likely to dampen expectations for further quantitativeeasing from the Federal Reserve as officials continue to call forprivate sector growth to gradually improve over the comingquarters. However to effectively reduce the unemployment rate, jobcreation would need to top 400K a month and the print may see asubdued reaction if the data fails to impress. The dollar is likelyto react favorably to a strong print as expectations for furtherdollar diluting measures from the central bank diminish. Upcoming Events

Date	GMT	Importance	Release	Expected	Prior
12/2	13:30	HIGH	Change in Non-Farm Payrolls (NOV)	125K	80K
12/2	13:30	HIGH	Unemployment Rate (NOV)	9.0%	9.0%
12/2	13:30	MEDIUM	Change in Private Payrolls (NOV)	146K	104K
12/2	13:30	LOW	Change in Manufacturing Payrolls (NOV)	9K	5K
12/2	13:30	MEDIUM	Underemployment Rate (U6) (NOV)	-	16.2%
12/2	13:30	MEDIUM	Average Hourly Earnings (MoM) (NOV)	0.2%	0.2%
12/2	13:30	MEDIUM	Average Hourly Earnings (YoY) (NOV)	2.0%	1.8%
12/2	13:30	LOW	Average Weekly Hours (NOV)	34.3	34.3
12/2	13:30	LOW	Change in Household Survey (NOV)	-	277

--- Writtenby Michael Boutros, Currency Analyst with DailyFX.comJoinMichael tomorrow for Live Coverage of the USNFP Print at 1315GMT (8:15ET)Tocontact Michael email mboutros@dailyfx.comor followhim on Twitter @MBForex.Tobe addedto Michael’s email distribution list, send an email withsubject line “Distribution List” to mboutros@dailyfx.com DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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