The US data continued to print weak and bad weather was likely once again the contributing factor. Initial jobless claims came in a lofty 469K, though this was an improvement from the 498K read the prior week. The housing market continued to bleed with pending home sales sinking -7.6% in the month of January on the heels of a paltry 0.8% gain the prior month. If that wasn't enough, factory orders showed a downward revision to business spending in January to -4.1% from a -2.9% preliminary read. The one bright spot for the good 'ol US of A was nonfarm productivity, which surged to a +6.9% annual rate in the 4Q final print. To put things in perspective, Germany's productivity remains down -1.3% from one year ago - where do you reckon global investors would rather park their long-term funds? The late session price action is likely providing a guide to what we could experience overnight now. EUR/USD remains choppy between 1.3550 and 1.3600 and we would not be surprised to see this continue until the explosion, known as NFP, hits the tapes tomorrow in the NY morning.

While most of the employment data we have in hand for the month of February suggest the trend in the jobs market remains up, severe weather in the United States during the NFP survey period will likely have a sizeable negative impact on the government numbers. To put things in perspective, the last time we saw a February that had such severe winter weather was back in 2007 and that month the portion of folks not at work due to weather was a whopping 505K. The average February sees about 240K people out for weather related purposes. We think the additional impact this time around will be closer to 100K (for a total of about 340K) but that this will be slightly offset by government hiring for the 2010 census. Thus our base case is that the final tally will show a decline of -75K payrolls, slightly below the consensus guesstimate of -65K.

One area of significant surprise could be the unemployment rate and here we are looking for a potential rebound back to 10.0% from 9.7% last month. Initial jobless claims tend to work well in terms of predicting the unemployment rate and they jumped to a peak of 498K on the month, from an average 462K the previous month. Even more compelling evidence of a potential squeeze higher is what occurred in the Conference Board's consumer confidence survey. The so-called labor differential, which measures jobs plentiful minus hard to get, sank sharply to -44.1 from -42.1 prior. This metric correlates well with the jobless rate and suggests a non-trivial risk of a reversion back to double-digit unemployment. Consensus is a touch less pessimistic on this front, looking for a modest uptick to 9.8%. Keeping in mind that we expect a worse than consensus report, our view is that short positions in the yen crosses (especially EUR/JPY) ahead of the data make sense.