Market Analysis by Finexo.com
Past Events:
• USD ADP Non-Farm Employment Change out at 32K, versus expected 29K, prior 19K
• USD ISM Non-Manufacturing PMI out at 55.4, versus expected 56.1, prior 55.4
• EUR Retail Sales m/m out at 0.0%, versus 0.1%, prior -0.2% (revised up)
• GBP Construction PMI out at 58.2 versus expected 53.5, prior 53.1
• AUD Retail Sales m/m out at 0.3%, versus expected 0.8%, prior -1.2%
• AUD Trade Balance out at -2.08B, versus expected -2.09B, prior -1.70B
• NZD Employment Rate out at 6.0%, versus expected 7.3%, prior 7.1%
Upcoming Events:
• GBP U.K Parliamentary election (all day)
• GBP Halifax HPI m/m (6th-8th)
• GBP Services PMI (930GMT)
• EUR German Factory Orders m/m (1100GMT)
• EUR Minimum Bid Rate (1245GMT)
• EUR ECB Press Conference (1330GMT)
• CAD Building Permits m/m (1330GMT)
• USD Unemployment Claims (1330GMT)
• USD Fed Chairman Bernanke Speaks (1430GMT)
• CAD Ivey PMI (1500GMT)
Market Commentary:
The Euro tumbled to its weakest level against the U.S dollar in over a year amid growing concerns that Greece’s fiscal woes will spread to other indebted nations. The 16-nation currency hit a low of $1.27881 for the first time since March 2009 as Moody’s Investors Service placed Portugal’s Aa2 government bond ratings on review for another possible downgrade. In Greece, a nationwide general strike crippled the country, as protests against the government’s recently announced austerity measures turned violent, with a firebomb attack on a central Athens bank killing three people. The riots escalated as citizens of the debt-stricken nation halted flights and shut shops in a direct response Prime Minister George Papandreou’s plans to cut wages and pensions and raise taxes in return for a 110 billion- euro ($143 billion) rescue package. The Euro closed at $1.28126, down 1.17% from the day’s opening price and down 3.80% from the week’s opening price.
The EUR/JPY tumbled to a low of 119.935. The pair closed at 120.170, down 2.13% from the day’s opening. The Euro continued to fall against the Yen, touching on a low of 119.481 in this morning’s trading session.
President Jean- Claude Trichet will be fighting for the credibility of the ECB as well as the Euro today as he faces questions over the institution’s decision to throw away collateral rules for Greek debt. On Tuesday, Trichet altered the rules for the second time in a month to guarantee the ECB will keep accepting Greek government bonds as collateral for loans even though they had been downgraded to junk status. This move comes in a direct contradiction to the declaration made earlier this year by Trichet that the central bank would not alter its collateral rules for the benefit of a single country.
According to economists the central bank may have to extend that to other nations, renew a program of lending unlimited cash to banks for a year, and even start buying government debt if the €110 billion- ($146 billion) bailout plan for Greece fails to stop the euro’s slide. The ECB decision raises tough questions that will make Trichet’s monthly
Today, the ECB will announce its minimum bid rate decision – the central bank is expected to hold its key interest rate at its current record low level of 1.0%.
The Euro’s weakness helped the dollar index hold on to its impressive gains this week. The index was up at 84.11, not far from a one-year high of 84.31 hit earlier in the session. The U.S Dollar got a boost from data showing U.S. private sector employers added 32,000 jobs last month, bolstering the view that U.S. interest rates will likely rise from record lows well before action on rates in the euro zone.
Companies in the U.S. added workers in April for a third month, according to data based on private payrolls. Data from the ADP Employer Service yesterday reported an increase of 32,000, following a revised 19,000 gain the prior month. The ADP figures were forecast to show a gain of 30,000 jobs. According to economists’ estimations, Friday’s highly anticipated Non-Farm Payrolls are predicted to show another month of strong gains – 197K. Last month, the NFP finally re-entered positive territory and recorded an increase of 162K in the number of employed.
Service industries in the U.S. expanded in April at the same pace as the prior month, indicating factories will drive any pickup in the economy. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, held at an almost four-year high of 55.4 for a second month. Readings above 50 signal expansion.
Going into its election, the British currency traded near a nine- month high against the Euro, touching on 84.77 pence per euro yesterday afternoon. The GBP rose as the latest UK election polls pointed to a likely victory for the Conservative Party and in reaction to report of strong UK construction PMI and rising retail price inflation.
The UK general election will be held all day today. The latest polls suggest that the Conservative Party will win in a close election that will most likely result in a hung parliament. Investors remain concerned that a hung parliament will make it less likely that the new UK government will take quick action to reduce UK deficit, which could lead to a downgrade of the UK AAA sovereign debt rating.
The UK manufacturing sector is grew at the fastest rate in more than 15 years, boosted by an unprecedented leap in exports of finished goods, according to a closely-watched survey. Yesterday a report showed UK construction sector activity surged in April, but employment in the sector is still continuing to decline. The April Construction Purchasing Managers’ Index spiked to 58.2 from 53.1 in March. It was the highest level since September 1994, and driven largely by a jump in new export orders to 60.7 from 56.8, which was also the highest since the measure was first introduced in the survey in January 1996. This morning, the Markit will release the Service PMI. The last purchasing managers’ index refers to the services sector. This sector already reached 58.3 points but then dropped back to 56.5 points last month. Economists expect that index to rebound slightly, to reach 57.1
The Canadian dollar traded at a five week low versus the greenback, pressured by a spike in risk aversion, and weaker equity and commodity markets. Yesterday, the Loonie depreciated 0.61% against its American counterpart – to close at C$1.03088. This morning, the Canadian currency continued to slide touching on a low of C$1.03566.
This afternoon, Stats Canada will release the change in the number of building permits issues between March and April of this year. This important indicator leaped 5 months ago, and has been falling short of expectations since then. Two consecutive months of drop will probably be followed with a rise this time – showing that the housing sector is aligning with other factor of the economy. Economists predict a rise of 0.6% this time. Also out this afternoon, the Ivey PMI. The Richard Ivey School of Business’ important index recovered from a drop at the beginning of the year and reached 57.8 points – the highest since October. It’s predicted to edge up to 59.3 points this time.
Australia’s trade deficit widened in March for a third month as exports of coal fell and oil imports rose, a sign domestic demand continues to spur the economy. According to the bureau of statistics, the trade gap swelled to 2.08B AUD, from a revised 1.7B AUD in February. Australia’s widening trade gap suggests robust domestic demand and investment are increasing imports, highlighting the central bank’s view that the nation’s economy is expanding at or close to trend. Earlier this week Governor Glenn Stevens increased the benchmark lending rate this week by a quarter point to 4.5%, the sixth move in seven months.
The Australian dollar fell to 90.63 U.S. cents at from 90.85 cents just before a separate report released at the same time showed retail sales rose in March at less than half the estimated pace. In this morning’s trading session, the Aussie continued to slide against the USD, for the third day on a row, to touch on a low of 0.89944. Since Tuesday, the Australian currency has lost 3% of its value against the U.S Dollar.
Forex Market Review & Analysis by Finexo.com
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