Forex Investment and Currency Trading

US non-farm payrolls came in within bleak expectations, -240k, biggest drop in 7 years, with downward revisions for Sept. and Aug. totaling -179k and the unemployment rate higher at 6.5%.  Euro/yen initially crashed 2 yen to below support on risk aversion theme but recovered as equity futures rose, traders citing the unemployment data wasn’t as bad as could have been.  The Dow opened higher, Treasuries are off, and Euro is back above 1.28 while dollar/yen is testing 98 session high.  Market strategists note the unemployment rate is consistent with weak “jobs hard to get” category in latest confidence report and with yesterday’s unemployment claims report.  Pundits noted this matched 1983 highs but the labor force is 38% larger now than in 1983.  But the end of the aerospace strike, lower gas prices, auto sales incentives, and thawing credit markets could  indicate whether “October marks the onset of cascading economic momentum or an unusually bad month that could mark the peak rate of decline.”  Meanwhile, Euroland problems continue - ECB bank lending survey showing tighter credit conditions and German industrial production collapsed, suggesting a negative print for German 3Q GDP.  Technicals remain Euro negative, targeting 1.2527.  Unless it breaks over 1.3109.
 
USD/yen is following Euro up as euro/yen breaks higher on lower risk aversion (VIX is falling with higher stocks) and targeting 99.
 
USD/CAD at the lows around 1.17 is also following Euro and better than expected unemployment report, rate under the US rate for the first time since 1981.
 
Global Rates Synopsis:

• The Treasury looks to finance its large financing need through 3-year notes and bills.
• Although the economy is in a recession, there are reasons to believe that the deterioration in consumer sentiment during recent months may not be repeated during the final months of the year.
• The Fed’s paying interest on reserves attempts to move the Fed funds rate to a channel between the Fed funds target and the discount rate.
• Despite significant decline in LIBOR rates, forward FRA/OIS spreads have widened, which has slowed the pace of tightening in 2-year spreads.
• Despite remaining risk reductions due to the global financial crisis and fiscal stimulus, there should be room for JGB yield declines.
• The ECB decided not to get ahead of the curve, but the BoE did, sparking a European rally at the front end. This removed some of the value we still saw in the Euro curve.