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Forex Daily Overview

USD mixed, jobless claims fall more than expected

Thu, Nov 5 2009, 18:13 GMT
by Michael J. Malpede

Easy Forex

• USD: Lower, jobless claims fall, productivity soars, unit labor costs decline, stocks surge
• JPY:Lower, supported by a dip in risk appetite as equities decline in Asia
• EUR:Higher, ECB leaves interest rates unchanged, Trichet sees pick up in economic activity
• GBP: Higher, BOE expands its asset purchase plan by £25 bln, industrial and manufacturing output rise
• CAD and AUD: AAUD higher & CAD lower, hawkish comments from RBA Governor Stevens, deficit widens

Overview

USD traded mixed to lower Thursday as investors digest the impact of Wednesday's decision by the Fed to maintain low interest rates for an extended period and today's decision by the BOE to maintain current level of interest rates and expand its asset purchase plan. The BOE will expand its asset purchases by £25bln. GBP firmed in reaction to the BOE's decision to expand liquidity as the size of the increase was smaller than market expectations. The ECB held rate policy steady as expected. In the press conference following the ECB policy decision ECB president Trichet made positive comments about EU economic outlook and signaled the first steps towards an exit strategy from non-conventional policy measures. His comments boosted demand for the EUR. AUD was supported by hawkish comments from RBA governor Stevens that neutral policy is higher than current yields JPY traded higher supported by risk aversion as equities decline in Asia. US economic data was positive
with jobless claims dropping to the lowest level since January, Q3 productivity rose the most in six years and unit labor costs declined by more than expected. The drop in the jobless claims may encourage analysts to revise their nfp estimates lower. The surge in productivity and lower labor costs cuts two ways. Employers are doing more with less and the cost of labor is going down. This could encourage employers to maintain current levels of employment or begin to increase hiring. It will depend on how confident employers are in the sustainability of the US recovery. Many employers may choose to increase hours worked instead of hiring new employees. In addition, US retailers posted better than expected October sales. US equities rallied sharply in reaction to today's data but the reaction in the Forex market was muted. There was little reaction to a statement from and NYU economist Roubini that he expects the USD to rise 20% over the next six months and that the end rally in risk assets may end abruptly.

US October unemployment will be released Friday. US unemployment is expected to rise to a new 26 year high but nonfarm payroll job losses will likely be less than 200k. The US  unemployment report will be key to investor risk sentiment and speculation about whether the US recovery is sustainable. FX price direction remains closely correlated to equities and risk sentiment. 

Today’s US data: 

Jobless claims for week ending 10/31 declined by 20k to 512k, a reading of 521K was expected. Jobless claims were at the lowest level since January. Q3 productivity rose 9.5%, a 5.5% rise was expected. Q3 unit labor costs dropped by 5.2%, a 4.5% decline was expected..

Upcoming US data: 

On November 6th October nonfarm payroll and unemployment will be released. The nonfarm payroll is expected at -175k compared to -263k last week and the unemployment rate is expected to rise 0.1% to 9.9%. September wholesale inventories and consumer credit will also be released on november 6th. Wholesale inventories are expected to fall 1% and consumer credit is expected at -10bln..

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Published on  Thu, Nov 5 2009, 18:20 GMT