Upbeat economic data helped stocks extend gains but the US dollar remained relatively flat on the day. Initial jobless claims in the US fell to 512K from 532K and the market rejoiced. Nobody bothered to report that the true continuing claims number (state and federal programs), however, remains near a whopping 9 million and has shown no improvement in recent weeks. This suggests it is still very difficult for folks who lost a job to find a new one. Equities closed up 2% on the day nonetheless and the robust correlation between strong equity markets and New York Yankees championships remains intact.
The Bank of England created a stir by raising its asset purchase program by a smaller than anticipated 25B to 200B. Consensus was for an increase of 50B. The notion that this means less money printing helped GBP extend gains ahead of the NY open. However, Cable pared gains from the 1.6630/35 highs towards 1.6580 at the close.
ECB President Trichet offered no earth-shattering developments but was a touch more optimistic about the economic outlook in the Eurozone. This and the comment that liquidity will likely not be extended further (no more money printing) helped EUR/USD squeeze up from 1.4865 towards the highs above 1.4900. The pair eventually gave up the ECB gains and settled right where it went into the event.
The focus now turns to tomorrow's NFP report. We look for October headline nonfarm payrolls to decline by a steeper than expected -190K and the unemployment rate to jump to 10.0% from 9.8% currently. Per the price action of the last six NFP releases, we think a similarly negative reaction in risky assets - and positive reaction in USD - will follow any downside surprise to NFP. See the full report and trading strategy: http://www.forex.com/09-11-05-nfp.html