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Nonfarm Payroll Data Much Weaker, Extends Greenback's Overnight Gains on Increased Risk Aversion

Thu, Jul 2 2009, 22:20 GMT
by Nick Nasad

CMS Forex

US - Nonfarm Payroll Disappoints Forecasts, 467K Jobs Lost in June

June's nonfarm payroll release disappointed forecasts, with the economy shedding 467K jobs. That number undershot forecasts of a 345K decrease, and changes the outlook for the US labor market. Expectations had been for a slowdown in the pace of firings which could help improve the chances of a recovery. Though we are not near the levels of job losses seen in December through March, it does dampen expectations of an improvement in the labor market. The unemployment rate inched up to 9.5%, which was actually a better than expected result.

EUR/USD - Euro Falls To Test 1.40 Amid Risk Aversion

The Euro-Dollar pair was sliding overnight following a test of 1.42 yesterday. Stocks were lower in Europe as reports by Fitch Ratings said that Russian banks may need as much as $60 billion of fresh capital to help them deal with bad loans. Given the exposure euro-zone banks have to Russia, the news undermined the Euro. Following the nonfarm payroll release, the greenback extended its gains falling to test the area right below the 1.40 area. The weak jobs report increased the sense of risk aversion and sent US stocks falling.

USD/JPY - Yen Falls To Upward Sloping Line of Support

The Dollar-Yen pair fell 100 pips following the nonfarm payroll release. The greenback found support from an upward sloping line of support around 95.70. The indication here is that traders are taking riskier bets off the table coming into Friday’s thin holiday trading. The pair retraced to the 76.4% Fibonacci level from the rally seen the last two sessions.

EUR/JPY - Yen a Big Gainer as Stocks Slide in Europe and US

The Yen was a big benefactor of risk aversion and weaker stocks. The Euro-Yen pair for instance fell 250 pips from its open, to trade near 134.30. That wiped away the gains seen from the first half of the week.

EUR - Unemployment Rises, Producer Prices Negative

Releases from the Euro-zone showed unemployment climbing to 9.5% May, a bigger than expected increase and producer prices down 0.2%, a figure that undershot expectations. Both pieces of data show that the Euro-zone economy is still mired with weak employment and falling prices.

EUR - ECB Takes a Wait-and-See Approach

The ECB meanwhile held rates steady at 1%, a record low. Trichet said the current rates are appropriate, and the ECB seems willing to assume a wait and see approach, and that no rate cuts or increases are on the horizon. Trichet also said he was “happy” with the bank’s first 12-month liquidity-providing operation which supplied banks with a “significant amount” of money.

AUD/USD - Commodity Currencies Decline

The Aussie and other commodity currencies were hard hit today. The Aussie-US Dollar pair slid 150 pips, setting a new low for this week. The Aussie was pressured by weak trade data during the Asian session, and then fell below the 0.80 level in the wake of the US jobs report. The pair found support around 0.7940 which was the low from last Thursday.

AUS - Trade Deficit Widens in May

Australia's trade balance posted its biggest deficit since July 2008 in the May period. The trade deficit widened to a seasonally-adjusted 556 million Australian dollars, as exports continued their slide. Exports were down 5% continuing the weak demand seen in April when they slid 11%. The global economic slowdown has sapped demand for Australia's commodities, depriving Australia's economy of a key sector for growth.

US - Jobless Claims Decline

Turning back to the US, the news wasn’t all bleak. Weekly jobless claims fell 16K to 614K for the week ending June 27th. In addition the total number of people continuing to collect benefits fell to 6.7 million.

US - Factory Orders Increase 1.2% in May

Also, factory orders rose 1.2% in May, the third increase in four months as demand picked up for durable goods like aircraft, computers and machinery. So, even though the labor market as we saw today is still on the ropes, manufacturing is showing some signs of life.

Upcoming Releases

Tonight, Australia will post its services PMI, while overnight Switzerland releases data on consumer prices, the Euro-zone and UK post their services PMI, and the Euro-zone will release data on retail sales. Tomorrow, US banks and equity markets will be closed in observance of Independence Day.

Published on  Thu, Jul 2 2009, 22:32 GMT