Currency Markets Friday & Overnight
The US dollar fell slightly against the Japanese yen and euro in Monday’s trading session in Tokyo, as Asian players sold the dollar to take some profits off the table, following its strong performance on Friday in New York on a better then expected headline figure for the Non Farm Payroll data. However, according to many Asian traders this sell off is unlikely to continue further as we move through the trading session and into London, as they expect European traders, heartened by Friday’s positive surprise from the U.S. job market data, to reverse the currency’s course and push it up later in their first full trading session since the report as released. To recap the results, the NFP data showed 345,000 jobs lost in May, well below the forecast at 525,000 which many economists had expected, and the smallest number since the onset of the global financial crisis last fall. As a result, the euro fell more than 1% against the US dollar to a new session low as investors sold the euro on concerns that it had appreciated too fast and was therefore overbought. The European Central Bank left interest rates on hold, and indicated that the euro zone would have negative growth this year, but may recover in 2010. Meanwhile, its labor market would deteriorate further in the coming months.
The UK pound traded narrowly against the dollar in the London morning session. Sterling then rebounded briefly and sharply to a high of 1.6245 against the dollar after the release of U.S. unemployment rate. Investors focused on the much smaller than expected U.S. job cuts as a slower deterioration of the labor market, as this surprise number supported market views that dollar denominated assets will gain while the U.S. economy is recovering. As a result cable later tumbled to an intra day low of 1.5940 against the US dollar in the afternoon sesion in New York on Friday.
The Canadian dollar gains evaporated from a near eight month high after the economy lost a net 41,800 jobs in May after an increase of 35,900 in April. The Australian Dollar traded around the USD0.8000 level before dropping to USD0.7900 on the Chinalco news before recovering on a strong rally in Commodities and a buoyant stock market.
Currency Markets Morning Outlook
The euro is tipping slightly higher Monday as investors reassess the US dollars recent surge, following data showing signs of possible improvement in the U.S. job market. Many traders have not totally ruled out the possibility of more dollar falls during the rest of the global day, but indicated that as the market awaits further U.S. economic indicators later in the week, any sharp declines are unlikely. For the euro vs dollar, bids are seen placed at the 1.3940 level, stronger around 1.3925. A break below this latter level may open a deeper move toward USD1.3910/00 ahead of USD1.3850. Offers are now seen placed from around USD1.3990, with interest extending up to USD1.4005.
The dollar vs yen may rise more as players trim shorts amid heightened US dollar bullishness after better than expected U.S. jobs data Friday, according to many analysts, with the currency pair well supported above 98. Technically, the short term outlook remains bullish ahead of trend line resistance around 101.15-20, provided we can break out of the currency sideways consolidation. The most recent IMM report shows speculators still net short the dollar to yen pair. Currency analysts say that we may see further gains in the near term as players unwind positions.
European stocks are expected to open marginally lower Monday, as investors take time to digest last week’s strong gains amid signs the U.S. economy, the world’s largest, could be pulling out of its slump. All market traders and economists will be watching U.S. data closely this week for any confirming signals, an in particular the April trade balance Wednesday, followed by May retail and food sales Thursday, in order to confirm the view that the country’s severe recession may be moderating.
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