U.S. Forex Market Commentary

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5360 level and was capped around the $1.5495 level.  The common currency extended its recent losses and reached its lowest level since 24 March.  Traders continue to speculate that the U.S. economy may have turned the corner and is on the road to improvement following several months of economic hardship caused by credit market dislocations.  The Federal Reserve announced it is expanding the size of its Term Auction Facility to US$ 75 billon from US$ 50 billion to counter “persistent liquidity pressures in some term funding markets.”  The Fed also announces it is increasing the size of its currency swap agreements with the European Central Bank and Swiss National Bank.  The Fed also announced it is expanding the collateral acceptable under the Term Securities Lending Facility.  Data released in the U.S. today saw the April non-farm payrolls tally decline 20,000, much-better-than-expected, while the April unemployment rate ticked lower to 5.0% from 5.1%.  Also, average hourly earnings were up +0.1% m/m and 3.4% y/y.  These data suggest wage inflation pressures are abating and other data saw March factory orders improve +1.4%.  In eurozone news, EMU-15 April final PMI manufacturing printed at 50.7, its lowest level since August 2005, while German final April manufacturing PMI printed at 53.6.  Moreover, German March retail sales were off 0.1% m/m and 6.3% y/y.  Euro bids are cited around the US$ 1.5345 level.