ECB trims rates, Euro climbs on short-covering; US Payrolls next

BOC cuts, CAD flat; USD/JPY dips, strong commodities lift Aussie

Summary:

The Euro (EUR/USD) edged 0.15% higher to 1.0890 (1.0875) after the ECB trimmed rates by 25 basis points to 4.25%, which was widely expected.

The ECB raised inflation forecasts, decreasing the likelihood of further rate cuts this year. The move triggered a short covering rally in the shared currency ahead of today’s US Payrolls report.

Elsewhere, the Bank of Canada (BOC) trimmed its policy rate to 4.75% from 5%. The move was also widely expected. Against the Greenback, the Canadian Loonie eased to 1.3670 (1.3695).

Strong commodity prices boosted the Australian Dollar, which rose against the Greenback to 0.6665 (0.6635). Silver prices soared to USD 31.30/ounce from USD 30.10/ounce yesterday. Australia’s economy, however, grew 0.1% in the first quarter, slowing from 0.3% previously.

The US Dollar steadied against the Japanese Yen to 155.65 from 156. Earlier in the week, the USD/JPY pair tumbled to 154.85 on haven demand for the Japanese currency.

Sterling (GBP/USD) rallied against the modestly weaker Greenback to 1.2793 (1.2770). Overnight, the British currency climbed to 1.2809, overnight and 1-week highs before easing.

The Dollar Index (DXY), a popular gauge of the Greenback’s value against

The Greenback was mixed against the Asian and Emerging Market Currencies. Against the Offshore Chinese Yuan (USD/CNH), the Dollar edged up to 7.2590 (7.2550).

The USD/THB (Dollar-Thai Baht) pair though, slipped to 36.39 from 36.51 previously. USD/SGD (Dollar-Singapore Dollar) settled at 1.3457, modestly lower from 1.3468 on Wednesday.

Economic data released yesterday saw US Weekly Claims for Unemployment Benefits climb to 229K from 221K previously, higher than estimates at 220K. Germany’s April Factory Orders fell to -0.2%, against expectations of 0.3%, but up from -0.8% previously.

• EUR/USD – The shared currency rallied gradually to 1.0890 from 1.0875 after the ECB trimmed rates to 4.25% from 4.50%. Short covering lifted the Euro against the Greenback after the ECB’s decision, the move was widely expected by the FX markets.
• AUD/USD – Strong resource and commodity prices boosted the Aussie Dollar to 0.6665 from 0.6635 previously. Australia’s Q1 GDP rose a tepid 0.1%, down from 0.3% previously, limiting the Aussie’s rally. Overnight, the Aussie traded to 0.6633 lows.
• USD/JPY – The Greenback eased against the Japanese Yen to finish at 155.65, down from 156.00 previously. The USD/JPY pair saw an overnight high at 156.44. Haven flows into the Japanese currency pushed the USD/JPY to an overnight low of 155.35.
• GBP/USD – Sterling rallied to 1.2793, up modestly from 1.2770 yesterday. The British Pound traded to an overnight high at 1.2809 before easing below the 1.2800 level. The overnight low recorded for the GBP/USD pair was 1.2762.

On the lookout:

Economic data picks up today with the spotlight on the US May Payrolls report. New Zealand kicks off today with its Manufacturing Sales report (y/y f/c 4.5% from -3.4% - ACY Finlogix).

Japan follows with its April Household Spending (m/m f/c 0.2% from 1.2%; y/y f/c 0.6% from -1.2% - ACY Finlogix). Japan also releases its April Preliminary Leading Economic Index (f/c 111.8 from 112.2 previously).

China follows with the release of Chinese May Trade Balance (f/c +USD 73 billion from +USD 72.35 billion previously – ACY Finlogix), Chinese May Exports (y/y f/c 6% from 1.5% - ACY Finlogix), Chinese May Imports (y/y f/c 4.2% from 8.4% - ACY Finlogix).

Germany kicks off Europe with its April Balance of Trade (+EUR 22.6 billion from +EUR 22.3 billion – ACY Finlogix), Germany April Exports (f/c 1.1% from 0.9% - ACY Finlogix).

The UK follows with its May Halifax House Price Index (m/m /f/c 0.2% from 0.1%; y/y f/c 1.2% from 1.1% - ACY Finlogix). The Eurozone follows next with its Eurozone GDP Growth Rate (q/q f/c 0.3% from -0.1%; y/y f/c 0.4% from 0.1% - ACY Finlogix).

Canada kicks off North America with its Canadian May Employment Change (f/c 22.5K from 90.4K – ACY Finlogix), Canadian May Unemployment Rate (f/c 6.2% from 6.1% - ACY Finlogix), Canadian May Participation Rate (f/c 65.4% from 65.4% - ACY Finlogix).

The US rounds up today’s busy economic calendar with its US May Average Hourly Earnings (m/m f/c 0.3% from 0.2% - ACY Finlogix), US May Non-Farms Payrolls (f/c 185K from 175K – ACY Finlogix), US May Unemployment Rate (f/c 3.9% from 3.9% - ACY Finlogix).

Trading perspective:

The Bank of Canada and European Central Bank were the first central banks to trim rates. Expect the other major central banks to follow. Prior to that, however, is the US Non-Farms Payrolls report for May, which could be huge for markets today.
Analysts are forecasting a Jobs creation number of between 182,000 and 185,000. Which is relatively narrow compared to other Payrolls reports day. For the US Dollar to slump, we would need to see a Non-Farms Payrolls number of 170,000 or lower. On the other hand, an NFP gain of above 185,000, say up to 200,000 would see the US currency spike higher, as well as a lift in US treasury yields. Whatever the results, expect FX volatility to remain elevated today.

• EUR/USD – The Euro extended its rally to just under 1.0900, finishing at 1.0890. On the day, look for immediate resistance at 1.0910 followed by 1.0940. Immediate support can be found at 1.0860, 1.0830 and 1.0800. Look for more choppy trading in this currency pair, likely between 1.0830-1.0930. Tin helmets on, trade the range until the release of US Payrolls.

• AUD/USD – The Aussie Battler rallied to 0.6665 from 0.6633, boosted by higher metal and commodity prices. Copper prices rebounded 1.27%, which supported the Aussie Battler. On the day, look for immediate resistance at 0.6685 followed by 0.6715. Immediate support is found at 0.6630, 0.6600, and 0.6570. Look for more choppy trade in this currency pair, likely between 0.6620-0.6720. Look to sell rallies to 0.67 cents.
• USD/JPY – Expect another choppy trading day in this currency pair. Immediate resistance lies at 156.00, 156.40 and 156.80. On the downside, look for immediate support at 155.35 (overnight low traded was 155.35). The next support level is found at 155.00 and 154.70. Look for consolidation, likely trading range: 155.30-156.90. Trade the range, nice and wide.
• GBP/USD – Sterling rallied against the US Dollar to 1.2793 in late New York, up from yesterday’s 1.2770. Overnight, the British Pound traded to a 1-week high at 1.2809 before easing. Look for immediate resistance at 1.2810 (overnight high traded was 1.2809). The next resistance level is found at 1.2840 and 1.2870. Immediate support can be found at 1.2760, 1.2730 and 1.2700. Look for Sterling to consolidate in a likely range today of 1.2730-1.2830. Trade the range, the preference is to sell on Sterling strength.

Happy Payrolls Friday and trading all. A top weekend too.