FOREX ASIA UPDATE - USD

USD Consolidation likely ahead of NFP The USD rebounded gradually on profit taking overnight, spurred during the New York session by the stronger than expected mortgage application and ADP employment data.

The mortgage applications index rose 4.9% from last week, while the refinancing index surged 13.7%. In the currently weakening housing market, however, this boost in purchase applications may not all flow through to gains in home sales and housing starts.

The ADP private payroll change for November came in at 158k, significantly stronger than the 100k non-farm payroll consensus estimate.

These data inspired more USD buying on profit taking while Treasuries saw better selling in the short end, as well as buyers of 10-years and long-dated principal strips. Adjusting to the strong ADP numbers, the swap spreads flattened as last week's steepening reverses.

But there is little evidence to suggest that the USD will strengthen from now, at least not until the crucial non-farm payroll numbers tomorrow. With the BoE and ECB meetings today ahead of the NPF on Friday, we expect the market to consolidate at current levels for now.

This though merely provides the market with the perfect breather before potentially resuming the dollar selling and carry-trade unwinding after the NFP or at the latest the FOMC meeting next week given that it remains unlikely that the Fed could get any more hawkish.

There could still be some room for a bear flattening in the Treasuries curve on a (unlikely) very strong NFP but increased volatility and our general expectation of weaker US data in coming weeks is likely to mean the USD would remain generally fragile. The environment for carry trades continues to look vulnerable on rising vols, with the NZDJPY slipping to new lows for the week yesterday and Japanese yields moving a bit higher on hawkish BoJ rhetoric.

BoJ's Iwata speaks today at a Business Conference at 0015 GMT.

Today we have, jobless claims are likely to partially reverse the run-up from the recent trend. We also forecast a weak gain in consumer credit in October.
Also BOE and ECB Rate Decision today.