Thursday 02/02/2012 8.30 PM GMT

Markets have been flat today as investors look forward to non farm payroll and we have some good resistance levels in the Pound, Euro, Aussie and Canadian Dollar which we want to sell into tomorrow.

For some reason, the market is obsessed with the fact the Fed will print money and embark on QE3 and in previous reports we have said there is little chance of the this happening, unless the euro zone crisis blows up and threatens the US. For now the US will not be printing money but the Euro zone already is and this is seeing rates fall and will see the currency fall to.

We think the dollars correction is just about over and can be bought tomorrow if the euro and other risk currencies start to fall back – lets take a quick look at our positions and then, take a look at the possible impact of the non farm payroll report.

Position Summary

AD: Up again at 1.070 but a stochastic reading above 90.00 and an RSI reading in overbought points to a correction short term back to around 1.050 – sell any down turn in momentum.

BP: The Pound has surged up above 1.58 and the best way to play this trade is look for momentum down turn and wait for a move back below 1.58, to set up a move to 1.55 support.

CD: We are short and were up at par and overbought and tomorrow this is a good sell on a momentum down turn. Momentum is overbought so expect a downside break next week to target 97.00.

EC: We are lightly trading the short side from 1.30 and have relatively wide stop back behind the gap at 1.32. Were testing the gap again and expect it to hold on a close basis – if not short trade short into 1.32 with stop behind the gap and look for more downside from here to at least 1.30.

Note: this market recently recorded the biggest net short position ever, as indicated by the CTFC Net traders positions – the market had simply become to bearish and this rally is stops being hit on speculative positions rather than fresh buying and we expect lower prices.

JY: After banking a small swing trade profit last week, we are waiting to get long the dollar as its now oversold. Look for a break up through 76.50, supported by momentum with a target of at least 77.00 with protection below 76.00.

Non Farm Payroll

Initial claims for state unemployment benefits fell by 12,000 last week to 367,000, the Labor Department said today. Job growth has gained momentum in recent months and the unemployment rate dropped to 8.5 percent in December, its lowest level in nearly three years.

The report is forecast to show that the jobless rate held steady while payroll growth slowed a bit from the previous report in December. A four-week moving average for initial filings fell 2,000 to 375,750, and claims have been lower than 400,000 in 8 of the last 10 weeks.

The Fed last week said it saw some improvement in the labour market but said the jobless rate remained too high and that it would probably keep overnight lending rates near zero until at least 2014. The Fed expects unemployment will this year will be between 8.2 and 8.5 percent.

Comment

The fact that payrolls will be steady and on forecast tomorrow is discounted in the price and many of the major currencies are near there resistance levels – can they push higher?

A better than expected payment number could cause the market to think there will be no QE3 and a worse than expected number, should increase the chances of QE3 in investors eyes but strength is likely to limited due to the oversold short term nature of the dollar – we think the dollar will be a buy tomorrow.

Greek Problem Solved – But Other Problems Loom

EU Economic and Monetary Affairs Commissioner Olli Rehn said today.

"An agreement on substantial involvement of the private sector to reduce Greek public debt is a key condition for a second EU financial assistance programme for Greece," He added..."I expect such an agreement between the Greek government and its private creditors by the end of this week,"

We think that the Greek problem being solved is discounted but there are other problems and Portugal could soon be the next country to pick on Lisbon's borrowing costs were above 15 percent which are unsustainable. Debt sales by Spain and France which saw lower bond yields, which shows the nervousness about euro zone debt.

The recent rally in the Euro is short covering in our view and all the factors to ensure a lower currency remain in place which include – an economy slipping into recession, interest rates on the way down and the Fed printing money which of course leads to a lower currency.

We see the Euro as a sell on failure to take out the gap of 1.32 tomorrow.

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