US Banks Told To Prepare for Rate Hike

The US Federal Reserve has told banks to prepare for a rate hike, however the lack of a time frame did not spark any dollar buying. And for the most part, forex traders brushed off the news as expectations for a rate hike are not till mid 2010 at the earliest. The US dollar strengthened across the board as traders expect a positive job report. Between the comments from the new finance minister of Japan, and todays dollar strength- the USD/JPY hit a 4 month high.

Eurozone

In light of worse then expected economic data coming from Germany and switzerland, it has weakened the Euro. Traders may be re-evaluating the economic conditions witin the eurozone, and finding that they may have to lower expectations for strong economic growth. The EUR/CHF remains in SNB intervention territory reaching a low of 1.4790. The SNB may be waiting till EUR/CHF hits 1.46 before intervening to get the most bang for the buck. The SNB intervened three times last year to prop up the EUR/CHF above 1.50. Any one short on this pair - seller beware.

Non Farm Payrolls

Nine of the ten labor market indicators show a reduction of jobless for december. Currently the market expects zero to positive payrolls with no major revisions to the November numbers. If job growth is flat, rally could be moderate. If job growth declines, it will be a disappointment to the financial markets. Depending on the degree of any job losses would influence the strength of the sell off.

3 scenarios for NFP Report and possible market reaction

1. Dec Payrolls Flat or Positive, No Major Revisions in Nov - Bullish

2. Dec Payrolls Negative, No Major Revisions in Nov - Bearish

3.December Payrolls Negative, Major Downward Revisions to November Numbers - Bearish