Asia Session: All Quite Ahead Of NFP Release

Renewed concerns over the European debt crisis have caused a small sell-off in equity markets throughout Asia. The FX market was more range bound as the lack of headline data could have kept some investors on the sidelines. Nevertheless, any commentary out of Europe and the release of US payrolls data could quickly turn investor sentiment.

The US is expected to release payrolls figures at 8:30 EST. Estimates are pointing towards a figure of around 155K for NFP and 178K for private payrolls. Given that the headline ADP figure out last night came in well above expectations at 325K, a figure around or above consensus would reinforce the idea that the US economy is heading in the right direction. However, traders are clearly jumpy when it comes to the European debt crisis, so any more worrying news out of Europe could quickly take control of risk sentiment and drive risk assets down.

Following a sell-off overnight both WTI and Brent crude had a fairly quiet session, keeping in line with overall risk sentiment. The action overnight was trigged by a surprise in US stockpiles data, with government data showing that domestic crude stockpiles rose 2.2 million barrels during the last week of December 2011. This figured startled a market that was expecting oil refiners to have cut stockpiles for year-end tax reasons, and accordingly WTI slid to around $101.81 and UK oil settled around $112.74.

Prior to last night oil prices had been on the rise, driven by rising tension in the Middle East and Africa. Iran has threatened to block oil shipments through the Strait of Hormuz, causing the US to guarantee free passage through the strait and increasing the chance of all out war between the two nations. If war did break out it would likely disrupt oil shipments throughout the region and drive the price of oil much higher. However, this is the last thing that Washington wants, given that just a $10 increase in the price of oil could affect US GDP by around 0.2%.

EURUSD failed to break back above 1.2800 during the session, and this level is now looking like a resistance point for the pair. The aussie did manage to break 1.0260 against the greenback but the break was short lived, and we are now looking at that level as a resistance line. Furthermore, given that AUDUSD spent most of the session between 1.0240 and 1.0260 a sustained break of either of these levels could signify more upside or downside depending on the direction of the break.

Data Watch: 

19:00 CHF Foreign Currency Reserves Last 229.3B
19:15 CHF CPI m/m Exp -0.1% Last 0.2%
21:00 EUR Retail Sales m/m Exp -0.4% Last 0.4%
21:00 EUR Unemployment rate Exp 10.3% Last 10.3%
23:00 CAD Employment Change Exp 20.0K Last -18.6K
23:00 CAD Unemployment Rate Exp 7.4% Last 7.4%