Talking Points:

- AUD/JPY, AUD/USD pivot at former support turned resistance.

- EUR-crosses seek stability; important few days for EUR/GBP.

- Follow trader sentiment in USD/CAD with live DailyFX SSI updates.

US economic data has been rocky of late, and traders are starting to chip away at the USDOLLAR Index as fears of a deeper slowdown take shape. Economic data momentum (via the Citi Economic Surprise Index) is off to its weakest start to the year since 2009, which of course was at the height of the global financial crisis.

The signs are alarming and gave the Fed good reason to soften its tone last week. We are just coming off of some of the slowest US retail sales growth in the post-GFC era, and industrial production just suffered its worst contraction in a non-recession year since 1952. The Fed's commentary embodied these concerns, saying in their policy statement that "labor market conditions improved further even as economic growth slowed late last year." Headline jobs growth has remained firm, but recent US Initial Jobless Claims - typically seen as a leading indicator for the labor market - have started to creep higher. The US economy is on shakier footing than most are willing to admit.

Rates markets are already pricing out the possibility of a hike in March, with only a mere 12% chance of a 25-bps hike being priced in, according to the Fed funds futures contract. How alarmed are markets? The first hike is now being priced in for December 2016:

Table 1: Probability of Rate Hikes across Upcoming Fed Meetings

For today, the January US ADP Employment Change report and the January US ISM Services/Non-Manufacturing index should give fairly strong hints about what we should expect from this Friday's January US Nonfarm Payrolls report. There is a chance that there may be a weather distortion in construction, housing, and jobs data between December and January: December produced the warmest weather on record in the US; whereas January saw the East Coast endure one of the worst blizzards ever (NYC missed its all-time snowfall total by <0.2"). It's possible that the strong December figures 'borrowed' growth from January; which may exacerbate the recent slide in US economic data.