US markets just about closed higher for the third day in a row last night as investors built up expectations of a positive payrolls report later today. Despite this Europe’s markets look set to translate into a fairly low key open here as traders sit tight awaiting this afternoon’s numbers, as the G20 meeting carries on into its second day as leaders continue to wrangle about a co-ordinated response to events in Syria . Expectations about future Fed tapering along with improving economic data from both the US and the UK economies has seen 10 year bond yields flirt with their 3% levels on both and helped support the US dollar and the pound quite substantially this week. The strength of the pound is likely to face another test this morning with the release of the latest UK manufacturing and industrial production data for July, and this isn’t likely to be as good as any of this week’s previous data simply because historically there hasn’t been a strong correlation between the PMI’s and ONS data. Expectations are fairly low with a rise of 0.2% expected for both manufacturing and industrial production for the first month of the third quarter, down sharply from the respective 1.9% and 1.1% figures seen in June. The total trade balance for July is also expected to come in around -£1.7bn, while inflation expectations for the next 12 months from August are expected to come in slightly from the 3.6% figure for July. Any disappointment from these numbers could well see gilt yields slip back below 3% and see the pound give back some of this week’s gain. In Europe the recent enthusiasm about the strength of the German economy was dealt a bit of a jolt yesterday with an absolute stinker of a July factory orders number, declining 2.7%, well outside the 1% decline expected. Today’s German industrial production numbers for July are expected to post a small decline of 0.5%, but if yesterday’s factory numbers are any guide the number could come in worse than that. Also due out are the latest Portugal and Greece GDP numbers with Portugal Q2 GDP expected to be confirmed at the surprisingly good 1.1%, while Greece is set to come in at -4.6%. Meanwhile in Cyprus there was two votes in the Cypriot parliament before politicians arrived at the “right” decision with respect to the latest bailout package in what has become a very European past time. If you don’t get the result you want in the first vote, vote again until you get the right outcome. I wonder if David Cameron had thought of adopting that approach in the recent UK vote on Syria, as it usually seems to work in Europe? We then come to the main event and the most important US employment report since the last one and the last one before that. Expectations for a good number have been building throughout the week as US investors chose to focus on the positive data this week, like the ISM manufacturing and services data, the Beige Book, auto sales and the encouraging jobless claims. Apart from Syria, it is the employment data more than anything that has focussed minds this week with yesterday’s services ISM employment component coming in at its best level since February being taken as a sign that we could get a good jobs report today. While not wishing to rain on anyone’s parade I think we’ve been here before, when last month there was a lot of exuberance about the number we would get with numbers of 225k being touted about, and we consequently got 162k, with a number of downward revisions on previous months as well. Similarly using the ISM employment component has proven to be an unreliable indicator in the past as to the strength of the subsequent payrolls number, given that we got the lowest monthly jobs figure this year at 142k in February the last time the ISM employment component was at the levels seen last month. That’s not to say we might not get a good number, but sometimes the narrative has to be put into context and it was not so long ago that the Fed Chairman was saying that the unemployment rate was understating the extent of the problems in the US labour market. The unemployment rate is expected to stay at 7.4%, however it is also worth keeping an eye on the labour participation rate which last month dropped to 63.4%. If we do see a good number in the region of +200k then we can expect to see the US dollar surge, especially against the yen and the 10 year yield push through the 3% level, as markets price in further the likelihood of a taper in less than two weeks’ time. EURUSD – yesterday’s close below the 100 and 200 day MA at 1.3140, shifts the onus towards a return towards the 1.3000 area, against expectations and negating the bullish candle from Wednesday. The euro needs to recover back through 1.3180 to stabilise otherwise a move towards the 1.3000 level initially seems probable with a break there targeting the lows this year at 1.2750. GBPUSD – the pound continues to close in on the previous highs at 1.5715 but the move continues to be somewhat glacial. 1.5745 remains the big level where we have the 100 and 200 week MA. While above trend line support at 1.5520 from the 1.4815 lows, and last week’s low at 1.5440 the trend remains positive. Only below the 1.5400 level argues for a sharper move towards 1.5340, and then 1.5260. EURGBP – this week’s break below the 200 day MA for the first time this year shifts the bias to the downside on the euro towards the 0.8395 April lows, with another new multi week low at 0.8425 yesterday. Pullbacks should find some selling interest at around the 0.8485/90 area initially. USDJPY – we’ve seen our move back to the 100.20/30 area and the risk remains for a pullback towards 98.80. Even if we do pullback that far the bias remains for a move back towards the May highs at 103.75 initially on the way to 107.50, which is the initial triangle breakout target. Only a move back below 98.80 undermines this scenario and argues for a test back towards the 97.00 level. CMC Markets is an execution only provider. 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