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Daily Forex Strategy Briefing

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Dollar Mixed Ahead of Employment Reports

Fri, Dec 5 2008, 01:56 GMT
by Hans Nilsson

CMS Forex

Dollar Mixed Ahead of Employment Reports

• The dollar traded mixed ahead of Friday’s important employment reports. US employment is forecast to fall over 300K and a drop over 400K is not out of the question. The USD/JPY dropped, testing important support in the 92 area, as US equities declined. Sterling fell against the greenback and dropped to a record low versus the euro after the Bank of England cut its policy rate 100 basis points to 2.00%, the lowest rate since 1951. The European Central Bank and Sweden’s Riksbank all cut benchmark interest rates in an attempt to stem the global economic slump. The Australian dollar fell as commodities and equities tumbled. The Canadian dollar declined the most in a fortnight as crude-oil prices fell below $44 and Prime Minister Stephen Harper won approval to suspend the parliament and delayed an opposition vote of confidence.


• The EUR/USD advanced, reversing an earlier decline, after the ECB lowered its refinancing rate 75 basis points to 2.50%. ECB President Jean-Claude Trichet said at the press conference that “global and euro-area demand are likely to be dampened for a protracted period of time” but did not promise further rate cuts. The pair has been stuck in a holding pattern between the 1.31-area resistance and the 1.24-area support since late-October. A breakout of this trading channel will most likely be followed by a larger move in the same direction.

Financial and Economic News and Comments

US & Canada

• US initial jobless claims declined 21,000 to 509,000, lower than the expected 540,000, in the week ending November 29, which included the Thanksgiving Day holiday, according to Labor Department data. The 4- week moving average of new jobless claims rose to 524,500, the highest since 1982, from 518,250. Continuing claims jumped to 4.09 million in the week ending November 22, the highest since December 1982. The dismal figures indicate a worsening condition in the US labor market in a recessionary economy.

• US factory orders fell a more-than-expected 5.1% m/m in October, the biggest drop since July 2000 as demand worsened at home and abroad, following September’s downwardly revised 3.1% m/m decline, Commerce Department data showed. October factory orders dropped 6.2% y/y. The continuing deterioration in the US manufacturing sector will contribute to deepening the recession.

• Federal Reserve Chairman Ben S. Bernanke, urging new steps to prevent home foreclosures, outlined four possible options, including buying delinquent mortgages and providing bigger incentives for refinancing loans. Each option would require “some commitment of public funds,” Bernanke said at a Fed research conference on housing and mortgage markets. “More needs to be done. Policy initiatives to reduce the number of preventble foreclosures should be high on the agenda,” he said.


• “Protracted period of poor performance” is expected and policy makers should remain “vigilant” in monitoring risks to economic growth, Chicago Fed President Charles Evans said in Michigan.


• The yearlong recession is worsening this quarter and the economy will probably be “very weak” throughout 2009, Atlanta Fed President Dennis Lockhart said in New Orleans.


• Canada’s Ivey PMI fell more than expected to a new 12-month low of 40.2 in November, well below 52.2 in October. The employment component fell to 42.2 from October’s 48.5. Inventories dropped to 35.8 from 52.4, supplier deliveries declined to 48.4 from 49.2, and prices plunged to 51.6 from 78.5.


• Canada’s building permits dropped a more-than-expected 15.7% m/m to $5.4 billion in October, according to Statistics Canada. Residential building permits fell 7.8% m/m to C$3.01 billion, while non-residential permits plunged 23.9% m/m to C$2.42 billion. Building permits fell in all provinces except Quebec (8.5% m/m), and Newfoundland and Labrador (9.7% m/m).

Europe

• Euro-area GDP contracted 0.2% q/q in Q3 after a 0.2% q/q contraction in Q2, according to first GDP estimates released by Eurostat. The economy grew only 0.6% y/y in Q3.


• The European Central Bank lowered its benchmark interest rate 75 basis points to 2.50%, the biggest cut in its 10-year history. ECB President Jean-Claude Trichet said the eurozone economy will contract next year for the first time since 1993. “Global and euro-area demand are likely to be dampened for a protracted period of time,” Trichet said. He didn’t give clues on further moves, saying the ECB shouldn’t get “trapped” by cutting rates too low.


• The Bank of England, as forecast, cut its key interest rate 100 basis points to 2.00%, the lowest level since 1951.


• Sweden’s Riksbank slashed the repo rate 1.75 percentage points to 2.00%.


• Switzerland’s GDP held flat q/q in Q3, while Q2 GDP was revised lower to 0.3% q/q from an initial 0.4% q/q reading. The growth rate decelerated to 1.6% y/y in Q3 from Q’2 upwardly revised 2.6% y/y, indicating Swiss economic activity is slowing at a rapid pace. The Swiss National Bank will likely cut interest rates further.

Asia-Pacific

• Japan’s capital spending dropped a more-than-expected 13.0% q/q in Q3, following a 6.5% q/q decline in Q2, according to the Japanese Ministry of Finance. Capital spending excluding software fell 13.3% q/q, also more than expected, following Q2’s 7.6% q/q fall.


• Australia’s trade surplus in seasonally adjusted terms increased more than expected to A$2.952 billion in October due to a strong rise in exports, following a downwardly revised A$1.254 billion trade surplus in September, according to Australian Bureau of Statistics (ABS) data. Seasonally adjusted, exports rose A$1.763 billion, or 7%, to A$28.141 billion, while imports increased A$66 million to A$25.189 billion. The October record-high trade surplus was mainly a result of the depreciating Australian dollar and contract ironore prices boosting commodity exports. These boosters may waver in the near future.


• Australia’s buidling approvals fell a seasonally adjusted 5.4% m/m in October against expectations for a flat reading, following September’s upwardly revised 5.9% m/m decline, according to ABS data. October building approvals dropped a more-than-expected 26.0% y/y after declining 21.6% y/y in September.

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Published on  Fri, Dec 5 2008, 02:06 GMT