US Employment report in focus today the risk-off sentiment continues to dominate with USD continuing to win out against all G10 FX with NOK and SEK losing the most.  Risk appetite failed to gather momentum following the release of strong ADP numbers (which in our view is likely due to technical adjustment factors), lower US jobless claims, and an improvement in the US non-manufacturing ISM index. The ISM index continues to hover around levels consistent with moderate economic growth; however, the employment component remains in contractionary territory. Meanwhile, EUR remains under pressure despite the mixed results of the French auctions on Thursday. While demand for French bonds was good, yields were higher than the previous auction.  Higher yields may be the result of concerns over the potential credit ratings downgrade of France by S&P. However, it also seems that the market is beginning to view better auctions as evidence of the success of recent ECB measures (LTRO) in order to promote the banking sector to embrace sovereign debt exposure as a form of back door QE (or QE-lite). While Eurozone concerns persist the focus today will be on the US employment report.  Accounting for the employment data released on Thursday, we have not changed our forecast of +130k (vs. consensus +150k) for total NFP.  The modest pick-up in hiring in the December employment report is driven in part by better seasonal trends. With the market looking for a relatively strong number especially after the strong ADP numbers, a downside surprise will likely augment the risk off tone
      
EUR crosses likely to remain heavy on the back of expected weaker data. While the NFP numbers will be important today, the Eurozone continues to take centre stage. Italian and Spanish 10yr yields rose 15bp and 21bp on Thursday and EUR crosses remain heavy. November German factory orders later today will likely follow a downward trend, but at a slow pace. In addition, Eurozone retail sales for November will likely decline once again. Thus, signs of a weakening Eurozone economy may weigh on EUR.  Meanwhile, Swiss CPI later today should be flat for the month of December on a m/m basis and come in at -0.5% on a y/y basis. While deflation remains a concern, speculation over raising the EURCHF floor is likely to dissipate given the controversy surrounding SNB Head Hildebrand on improper FX trading ahead of the imposition of the EURCHF floor. At the Thursday press conference, Hildebrand said he would not resign but admitted that the incident raised ethical questions. But if this scandal might claim his position, the market may well be tempted to test the remaining SNB members test the remaining SNB members' commitment to the 1.2000 floor.
       CAD to receive a boost from US and Canadian employment report
CAD has done relatively well against all G10 FX since the start of the year except against USD and JPY. CAD has likely found support on the back of the recent positive data surprises out of the US. In addition, we are constructive on CAD (on the crosses)  in the near term as it is best positioned to benefit from the current rise in oil prices even though the rise is being driven by geopolitical tensions (EU agreement to halt Iranian oil imports) rather than a positive demand-driven boost to commodities. AUDCAD should retrace lower. CAD may also receive a boost from today's US and Canadian employment numbers. We expect a small bounce in the December Canadian labour report of 13.5k vs. -18.6k in November.  However, this bounce is unlikely to affect the employment outlook since the economy shed nearly 20k in the past four months.