Dollar Firm Against European Majors As NFP Awaited

The dollar maintains a firm tone against European majors as focus is turning to US employment data today. Markets are expecting the non-farm payroll report to show 90k job growth in November, with unemployment rate unchanged at 7.9%. Looking at the leading indicators for NFP, the ADP employment growth dropped to 118k in November, down from prior 157k.

The four-week moving average of initial jobless claims jumped sharply from 355k to 408k. Employment component of ISM manufacturing index dipped into contraction area of 48.4, down from 52.1. That of ISM services dropped from 54.9 to 50.3, barely staying in expansion region. So, the overall picture suggested that the NFP number would be worse than October's 171k. The bigger question was indeed on whether October's number would be revised sharply downwards.

Canada will also release job data and is expected to show 10k job growth in November while unemployment rate is expected to be unchanged at 7.4%. Other data to watch include UK industrial and manufacturing production, German industrial production and Swiss foreign currency reserves.

The euro remains soft against dollar since yesterday's ECB meeting. The ECB left the main refinancing rate unchanged at 0.5% in December. While economic forecasts were downgraded, President Draghi cited improvements from some areas of the economy. Concerning interest rates, the President stated that there were wide discussion but the consensus was to maintain them at current levels.

A rate cut is still likely in the first quarter of next year but the key concern for the ECB would be the deposit rate which would fall to negative upon further reduction. On the unconventional monetary policy, the ECB rolled forward the full allotment for another 6 months.

The Japanese yen is also broadly weak on expectation of BoJ easing. Takatoshi Ito, a major contender for the BoJ governor job said that the central bank has done "too little, too late" and were "extremely passive in building inflation expectation." Though, he did acknowledge that setting an inflation target is "worth trying in order to pull Japan out of a deflationary spiral that has lasted 15 years.”

Media polls in Japan showed that the opposition LDP would win 257-306 seats in the 480-seat lower house in December 16 election. Former prime minister Shinzo Abe has overwhelming chance to reclaim the top job and his push for aggressive BoJ easing has be pressuring the yen recently.