Forex News and Reports

Majors rose against the greenback for the fourth consecutive session, and the sixth out of seven, as the monthly employment survey fell below consensus figures.  Trading at 1.2251, the current figure against the Swiss franc falls below the 1.2281 close seen yesterday in New York. According to the Bureau of Labor Statistics, employment on non-farm payrolls increased 138,000 in the month of April, however leaving the national unemployment rate unchanged at the current 4.7 percent.  With the Street calling for 200,000, the survey weighed heavily on the dollar, bucking previous upticks in consumer confidence and goods orders reports.

(more…)

The dollar’s woes continued for another session, with the currency tumbling sharply versus the euro to a one-year low, the Aussie at 7-month low and the Swiss franc to an 8-month low. Sentiment over global interest rate differentials remain a primary driver of foreign exchange moves with markets now anticipating a pause in the Fed’s tightening cycle along with the prospect of imminent rate hikes from overseas counterparts. On the premise of narrowing interest rate differentials, the greenback may be subjected to further selling pressure in the coming months.

The big question of the day is whether this morning’s release of the US April payroll report will be sufficiently robust to provide the dollar with some sort of stability. A disappointing number (below 170-80K) would exacerbate an already deteriorating state in the greenback and raise speculation of a pause in the June FOMC meeting. The dollar reaction to a strong report (above 220-30K) should be gauged in terms of the direction as well as the duration of that increase.

:00 am CAN Apr Net Change in Employment (exp 15.0K, prev 50.5 K) CAN Apr Unemployment Rate (exp 6.3%, prev 6.3%) 8:30 am US Apr Nonfarm Payrolls (exp 180K, prev 211K) 8:30 am US Apr Unemployment Rate (exp 4.7%, prev 4.7%) 8:30 am US Apr Average Hourly Earnings (exp 0.3%, prev 0.2%) 11:00 am CAN Bank of Canada Deputy Gov Longworth Speaks.

The pound dropped below the 1.8500 mark against the dollar in early trading Friday and now looks to US Non-Farm Payrolls, which are expected to show a healthy 200K increase.  Cable trade saw large gains prior to today which prompted some analysts to suggest the currency might retrace.  As of 8:20GMT the pair traded at 1.8493, down from the Thursday New York close of 1.8535.
The FTSE was little changed overall in early trade on Friday as oil stocks continued to lose ground after news of larger than expected rise in US gasoline inventories earlier in the week lingered on the agenda.  The FTSE 100 was higher at 6,046.9, a rise of 0.1 percent. The mid-cap FTSE 250 rose 0.3 percent to 9,983.1.

“Accentuate the negative, eliminate the positive.” That has been the fate of woe begotten dollar bulls in April as the market consistently ignored strong US data, rallying the EUR/USD by more than 400 points. The structural concerns that we talked about last month, including continued diversification into the euro by regional central banks dogged the dollar for most the of the month. Yet markets can only ignore gravity and reality for so long. If US continues to demonstrate resiliency and growth and if oil recedes from its all time highs a greenback snapback may be due.

Boris Schlossberg

Senior Currency Strategist

The franc retained a firm stance against the Euro on Tuesday and strengthened to 1.5580 in early Europe on Wednesday, although there was resistance close to this level. The US dollar found support close to 1.2325 against the Swiss currency on Tuesday with a fragile recovery back above 1.2370 in New York. The dollar was unable to sustain the gains and weakened back to below 1.2300 in early Europe on Wednesday before recovering back to 1.2370. Pressures for a franc correction weaker will be important in the short term.

The ECB left interest rates unchanged at 2.50% at today’s meeting, but the testimony afterwards left no real doubt that rates will be increased in June to 2.75%. US dollar sentiment remains very weak, but care will be required as there will be some pressure to curb positions ahead of the Friday US payroll data. For now, the pattern is likely to remain one of weak dollar corrections stronger followed by fresh Euro buying interest. A EUR/USD move to 1.2720 should certainly not be ruled out, but Euro buying looks to offer little value at current levels.

EURUSD

Euro implieds rose on the week carrying the spread higher off of the lower barrier according to our model. Additionally, feeding implied upside was a precipitous drop in the actual volatilities component. Over the course of the week, actuals dropped the second most of all the widely traded majors, pushing the short term measurement far below the implied counters. The resultant spread keeps the rangebound suggestions sustained after the week’s slight pickup on increased demand of the Euro denomination as the differential rises above the upper barrier. This currently coincides with a test of the 1.2670 resistance top for the session. Should the ceiling be pierced to the upside, expect vols to advance further, reaching extreme levels at a positive three differential. Range bound suggestions would persist should the test fail, pushing vols lower.

Bernanke Buries the Dollar

“Bernanke buried the dollar yesterday with his dovish testimony in front of Congress, “ we wrote on Friday. As many other analysts have already pointed out, Chairman Bernanke’s premeditated use of the word “pause” was enough to send dollar bears into a frenzy. With the market already nervous about dollar’s stability given the massive structural deficits of the United States, any suggestion that the rate hike cycle is coming to an end was enough to push the EUR/USD through the critical 1.2500 level. By the end of the day that number had reached the 1.2600 figure as lower than expected GDP, disappointing U of M numbers and a softer Chicago PMI all combined to drive the dollar lower.

US Dollar

It has been a quiet trading day today with Federal Reserve Chairman Ben Bernanke avoiding any comments on the economy or monetary policy in his speech earlier this morning. It appears that he does not want to bring any more attention to his recent comments for a pause in the central bank’s interest rate cycle – perhaps signaling that he is comfortable with Maria Bartiromo’s comments.