• Excitement Builds
• Europe Still A Worry
• Independence Day Beckons

In a week bookended by important American data, markets are now chattering about what the fallout will be if Friday’s payroll data will be as downbeat as Monday’s ISM figures.

As a pair, these two indicators are perceived as painting the most accurate picture of the American economy. The manufacturing index fell into contraction for the first time in three years prompting doubt over U.S. economic health; a negative nonfarm payroll result will only serve to cement ideas of further slowing.

Top Forex Brokers Speculate

Expectation thus far is not promising. “We are fairly pessimistic”, said James Knightley at ING. “…suggesting that the ISM will dip, based on regional indicators, while payrolls growth may be below 100,000 for the third consecutive month.”

Payrolls and ISM data will help determine whether further [Federal Reserve] stimulus is looking more likely, he added, explaining the intense investor interest surrounding the data.

Current expectation – according to a survey of economists by Reuters – is for 90, 000 jobs to have been created in June. But with May’s shock figure lingering at the back of investor minds, sentiment is far from stable as we move into the latter half of the week. Analysts suggest that any result over 70,000 has been priced in by the markets. "If it really goes below 69,000, I think that will be a big disappointment. It adds to the concern that the U.S. recovery is faltering," Philip Marey, strategist at Rabobank said.

Europe In Their Sights

"With all these surveys, the hardest part to know is if people aren't hiring because they are so worried about Europe. But the problem is we are not going to get a resolution in Europe (in the near-term), that's not going to go away," Marey added.

Ahead of Friday’s NFP data (and presuming that American civilisation survives Independence Day, with any potential alien invaders are swiftly taken out by Will Smith et al) investors across the pond will first be eyeing the ECB’s lending rate decision due Thursday. As Marey identified, the on-going situation in America is largely being directed by the strength and direction of economic headwinds blowing in from across the Atlantic.

A favourable rate cut by the ECB could help to stimulate growth in Europe, provide hope for the beleaguered U.S. and quell investor fear over the economic region’s future. Investor fear over the economic health of the euro zone and its impact on the U.S. faltering growth trajectory has already seen ten-year U.S. Treasury yields have begun to fall since Monday, when the ISM data hit markets.

Top market analysts are now suggesting that 10 year yields – which currently stand at 1.60 percent – could soon be seen testing a previously seen record low of 1.44 percent, particularly if Friday’s data disappoints.

Fed Intervention Eyed

With both growth and inflation slowing up, and numerous disappointing indicators having emerged, all eyes are now on the Fed for any further hints that easing measures will be put in place. The Federal Open Market Committee’s next meeting is set for July 31 to August 1, so investors have some time to wait before a decision.

That said, the precedent set by the central bank’s June meeting has set chins wagging when viewed in combination with this month’s data. “The bank was on the brink of approving more QE at the June meeting”, said Howard Archer (pictured) at IHS Global Insight, “and with latest data and surveys largely grim and the outlook uncertain, we believe a majority of MPC members will decide that more QE is now warranted and justifiable”.

Sarah Cox, Markets Writer. ForexSpace.com.