USD Steady Ahead of Payrolls
The greenback has pulled back slightly versus the euro and sterling heading into the key labor report, but remains buoyed against the yen. The dollar's rally in recent sessions can be attributed to easing fears about the US subprime crisis and upbeat data, namely the ADP private-sector payrolls report earlier in the week. Further, market expectations for a 50-basis Fed rate cut next week have also been tempered, with Fed Funds futures pricing in 36% likelihood for a more aggressive rate cut.

The key highlight for the session ahead will be November non-farm payrolls, which is forecasted to be more than halved from the previous month to 75k, versus 166k from October. The November unemployment rate is also seen creeping up to 4.8%, from 4.7% a month earlier. Given the strong ADP private-sector payrolls number from earlier in the week - which sharply outpaced estimates at 189k versus calls for 50k, traders will look for a stronger NFP reading. We anticipate further strength in the dollar if over 100k jobs non-farm jobs were created in November.
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Yen Slips on Data
The yen slumped across the board, losing most ground against the euro and sterling in early Friday trading. Weighing on the currency was a report revealing downwardly revised economic growth, which showed Q3 GDP up by 0.4% q/q versus the preliminary 0.6% reading. The annualized figured was sharply lower at 1.5% compared with a preliminary reading of 2.6% and calls for a slight increase to 2.7%. Capital expenditures for Q3 sharply missed consensus estimates at 1.1%, falling short of the 1.9% forecast and down from the 1.7% preliminary figure. Meanwhile, the revised GDP deflator declined by 0.4%, larger compared with the preliminary 0.3% decline.

The BoJ's Idesawa downplayed the impact of a strengthening yen on Japan's economy, saying the "impact of exchange-rate moves has fallen compared with 10-20 years ago". Idesawa said the impact on manufacturers is limited since many incorporate risks of currency fluctuations in business planning. Further, he suggested that while the euro has strengthened against the dollar, it has not appreciated much on a real trade-weighted basis.

USDJPY remains buoyed near two-week highs around 111.50. Resistance begins at 112, followed by 112.50 and 113. Additional ceilings will emerge at 113.30, backed by 113.75 and 114. On the downside, support starts at 111.20, followed by 111 and 110.65. Further losses will be tempered at 110.30, backed by 110 and 109.60.