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Forex Market Outlook 1/6/12

By Mike Conlon, ForexNews.com on Jan 6, 2012 01:16:29 GMT

Today is jobs Friday with the all-important Non-Farm Payrolls report due out later this morning. The official expectation is that we will see an addition of 155K jobs, though based on recent data releases, I'm hearing that the "whisper number" may be a lot higher.

For those of you unfamiliar with the "whisper number", it is essentially a figure that market insiders are expecting which is usually higher than the official expectations. This usually occurs because of new information that comes out between when the estimates are released and the actual release of the figure. Yesterday's ADP report came in much better than expected and other economic data reports here in the US have been positive, creating a hope that this figure will blow out expectations much like the ADP number.

What I am hearing is that the whisper number for this report is 185K, with some expecting a print above 200K. Why is this important? Because the markets are a discounting mechanism so a lot of these expectations are already baked into the cake. So sometimes a better than expected number might not be good enough if it doesn't eclipse the whisper number. For a example, a print of 165K would be 10K better than the expectation, but 20K below the whisper so the initial reaction could be very positive, but then we could see a quick reversal and the markets sell-off. This is often referred to as a "bull trap" and can create heavy volatility, which is often what we see after these releases anyway.

So how does one trade this figure? My advice is usually to wait until after the number is released and then wait for either a pullback from the initial move to get in with the new trend, or wait for a reversal and take the opposite position once the initial frenzy is done. Easier said then done, I know, but getting into positions ahead of the figure is just gambling. The example I used above is just one possible scenario and by no means is a recommendation for action if those should be the number that are released.

So what else has been happening in the markets this morning? Well the news continues to worsen in the Euro zone though thankfully it is not related to the debt crisis directly. Unfortunately though, the news is that the fundamental data is getting worse pointing to a recession in Europe. Economic sentiment figures are at a two-year low, and German factory orders came in worse than expected, showing a decline of 4.3% vs. an expected decline of 1.2%. In addition, Euro zone retail sales figures also came in lower than expected, posting a decline of 2.5% vs. an expected decline of .9%. The unemployment rate came in as expected at 10.3%. Not good at all.

This comes ahead of next week's meeting between Merkel and Sarkozy on Jan 9^th to discuss the new fiscal cooperation, and before major bond auctions in Spain and Italy at the end of next week. So it could get ugly.

With all of this negativity, one would expect the markets to be in major risk-aversion mode, but to start the US session this is not the case. Both stocks and commodities are higher, including European stocks, and the Euro has bounced back from earlier 16-month lows, though it is fast approaching that level again.

The other news is that Swiss CPI data came in lower than expected showing continued deflation, though it hasn't budged the franc much. The SNB has maintained its target range fairly well and is still at levels that may be too low to support price stability.

In Canada, the unemployment rate ticked higher to 7.5% vs. the expected 7.4%. This has caused the Loonie to tank vs. USD despite the fact that higher oil prices have been driving Loonie strength. This could reverse yet again, if a better than expected NFP figure is reported.

So the official NFP number is for a gain of 155K jobs, and the unemployment rate is expected to tick higher to 8.7%, so don't be concerned if that occurs. Keep an eye out for that whisper number though, as sometimes what is seemingly good can be disappointing!