TODAY'S BIGGEST PERCENTAGE MOVERS
| EUR/USD |
|
-82 pips |
-0.62 |
| NZD/USD |
|
-48 pips |
-0.60 |
| CHF/JPY |
|
-49 pips |
-0.56 |
THE STORIES IN THE CURRENCY MARKET
EXPECTATIONS FOR UPCOMING FED MEETINGS
| CURRENT US INTEREST RATE:
0.25% |
|
|
|
06/20 Meeting |
07/31 Meeting |
| NO CHANGE |
58.0% |
57.7% |
| CUT TO 0BP |
42.0% |
41.1% |
| HIKE TO 50BP |
0.0% |
1.2% |
|
|
|
|
WILL ECB SAVE OR KILL THE EURO?
USD: WEAKER ADP HINTS AT SOFTER PAYROLLS
The U.S. dollar traded higher against all of the major
currencies despite weaker economic data. The focus will be on the
ECB meeting tomorrow but non-farm payrolls will also garner some
attention. Leading indicators for NFPs are beginning to come out
and according to the latest reports, the odds favor a weaker
release. According to private payroll provider ADP, U.S. companies
added 119k jobs to their payrolls last month compared to a
downwardly revised 201k. Although ADP has a poor record of tracking
non-farm payrolls, the decline in employment change is consistent
with the rise in jobless claims. Interestingly enough however,
economists are still looking for payrolls to rise more in April
compared to March. The current forecast is for payroll growth of
161k and the overriding argument is that even though all signs
point to weaker labor market conditions, the absolute level of
jobless claims is consistent with 150k-160k payrolls. We'll leave
it to you to decide whether to believe this argument or not.
Thursday's ISM non-manufacturing report will provide additional
information on the level of job growth (or lack thereof) in the
service sector. At the end of the day, we only see 2 realistic
scenarios for Friday's NFP report - bad or really bad.
Unfortunately neither of these scenarios will be dollar positive.
Challenger Grey & Christmas will release its report on
layoffs tomorrow followed by the ISM non-manufacturing index. The
service sector report is generally the most reliable leading
indicator for payrolls. The market currently expects service sector
activity to have slowed. Factory orders were also released this
morning and they declined by 1.5 percent in March, erasing all the
past month's rise. Although the dollar ended the day higher against
the Japanese Yen as well, it is worth noting that the currency pair
is well off earlier highs which confirm that even though the
greenback strengthened and equities rebounded intraday, risk
aversion still dominates trading.
GBP: STRONGER DATA LIFTS STERLING TO 22 MONTH AGAINST EUR
The British pound rose to a fresh 22 month high against the euro
but weakened for the third consecutive day against the U.S. dollar.
Every piece of U.K. economic data released this morning was better
than expected. Construction activity continued to expand and even
though the pace of growth slowed, it was still stronger than
economists anticipated. The data shows that easy monetary policy
and low interest rates have provided supported for the housing
market. In March, the construction PMI index rose to a 21 month
high and in this context, the slowdown in activity is not as
significant. Consumer credit and mortgage approvals also increased
slightly in March confirming the steadiness of housing market
activity. There have certainly been more disappointments in
Eurozone data than U.K. data explaining part of the weakness in
EUR/GBP. However the primary reason why the currency pair dropped
to a fresh 22 month low is because investors expect the ECB to grow
more dovish tomorrow while the Bank of England grew less so back in
April. If the ECB satisfies the bears, EUR/GBP could finally fall
to a fresh 23 month low, which would require a move below 0.8068.
Nationwide house prices and PMI services are scheduled for release
tomorrow. Like the manufacturing sector, the service sector is
expected to experience a pull back in activity. House prices on the
other hand should rebound after falling 1.0 percent in March.
Earlier this week, Hometrack also reported an increase in home
values.
NZD: EMPLOYMENT NUMBERS DUE
The Canadian, Australia, and New Zealand dollars all weakened
against the U.S. dollar. Export commodity prices for New Zealand
trickled lower last month as ANZ's commodity price index recorded
its steepest drop in more than two years. The index fell 4.5
percent, to the lowest since December 2009, dragged down by sheep
meat, wool prices and cheese. New Zealand's unemployment data is
scheduled for release later tonight. Expectations are for the
unemployment rate to be unchanged at 6.3 percent, and the
unemployment change to increase by 0.5 percent as labor market
conditions continue to improve at a modest pace. Bank of Canada
Governor Mark Carney was named Canadian of the Year by the Canadian
Club of Toronto today. He was introduced as a "fiscal and economic
rock star" and accepted the designation. During his speech, he
called for rebalancing the relations between governments and
markets. Crude oil prices are lower on concerns of a weakening
European economy and disappointing job growth in the U.S. The
Energy Department's Energy Information Administration also reported
today that U.S. oil supplies grew slightly more than expected last
week, while demand fell nearly 2 percent. No new economic data was
released from Australia. The HSBC China manufacturing index rose in
April, signaling that a rebound in the world's second biggest
economy may help to offset constraints on global growth from
austerity measures in Europe. Improving economic activity in China
would provide a boost to Australian and New Zealand exports. The
AIG services index is scheduled for release from Australia
tomorrow. The PMI index printed at 47.0 in March and should remain
below the 50 boom/bust mark in April.
JPY: MARKETS CLOSED FOR REST OF WEEK
The Japanese yen strengthened against all the major currencies
today with the exception of the Japanese Yen. Economic data
released overnight included the monetary base and average cash
earnings. Data showed the monetary base unexpectedly contracted 0.3
percent in April. Japanese wage earners saw their pay increase 1.3
percent in March from a year earlier. This increase came after
falls last year due to the earthquake and tsunami. Overtime pay
advance 4.4 percent, and is a strong indicator of improving
corporate activity as businesses become more confident about
increasing output and productivity. Japan's services purchasing
managers' index dipped to 51 in April from 53.7 in March. Yet
private sector job creation is at the highest rate in nearly four
years. Japanese service providers recorded another month of
activity growth in April, although the rate of expansion slowed
since March. New business continued to rise at a strong rate, which
drove the first increase in services employment since July 2008.
The HSBC China purchasing managers' index rose to 49.3 in April
from 48.3 in March, showing signs that the Chinese and other Asian
economies are improving. Japanese government bond prices fell today
as investors took profits after a rally caused by additional easing
by the Bank of Japan last week. Some yields were even pushed to
1-1/2 year lows. But losses were contained as investors calmed
their trading ahead of a long holiday. Japan's markets will be
closed on Thursday and Friday for Golden Week. The holidays have
also been a factor behind the sharp decline in volatility. Japanese
bond investors were also pressured by remarks by a senior official
at Moody's Investors Service that Japan could face "the day of
reckoning" sooner than expected if the government fails to raise
the sales tax and investors demand higher returns on government
securities. Prime Minister Yoshihiko Noda has been working to
convince a divided parliament to pass the laws to double its 5
percent sales tax by 2015, to reduce the country's massive public
debt and stave off downgrades by credit rating firms to their
sovereign ratings on Japan.
EUR/USD: Currency in Play for Next 24 Hours