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The euro depreciated vis-à -vis the U.S. dollar today as the single currency tested bids around the US$ 1.3540 level and was capped around the $1.3640 level. Technically, today’s intraday low was below the $1.3576 level, representing the 50.0% retracement of the $1.2587 – $1.4281 range. The common currency moved to intraday lows after it was reported that U.S. January non-farm payrolls came in at +36,000, far below estimates between +140,000 and +150,000 and down from the revised 121,000 December figure. Also, the January unemployment rate fell to 9.0% from 9.4% in December, far below the 9.5% estimate. January private payrolls were up 50,000, down from the revised +139,000 December figure, and January manufacturing payrolls grew to 49,000 from the revised December reading of 14,000. Other data saw January average weekly hours worked tick lower to 34.2 while January average hourly earnings were up 0.4% m/m and 1.9% y/y. The euro reacted negatively as traders cited less demand for riskier assets like equities. Bad weather was partially accountable for the large distortion in January’s number. Economists note there are typically about 417,000 persons who cannot work due to weather conditions during the month of January and last month there were 886,000 workers impacted by seasonal effects. This difference suggests there could be some sizable employment gains and/ or upward revisions in the coming months. The labour force participation rate declined to a 26-year low of 64.2% and is the primary reason why the unemployment rate fell to 9.0%. U.S. persons not in the labour force have increased from 83.9 million to 86.2 million in one year while the number of unemployed persons has fallen from 15.0 million to 13.9 million in two months. These data evidence the fact that huge numbers of persons have given up looking for paid employment and while this will continue to keep the unemployment rate artificially low, it is not a result from positive economic growth. In contrast to the weak U.S. economic data, Canada’s January net change in employment grew from +22,000 to +69,200. Fed Chairman Bernanke spoke yesterday and said a failure to raise the U.S. debt limit would have “catastrophic†consequences. He also said the Fed expects U.S. economic growth will expand above the 2.5% level required to reduce the unemployment rate. Bernanke also said the Fed is considering an enhancement to transparency by increasing the number of press conferences. Many Fed-watchers continue to forecast the Fed will not raise official interest rates in 2011 and believe the Fed will exhaust its US$ 600 billion asset-purchase program as expected by mid-year. In eurozone news, EMU-17 finance ministers are convening today to discuss the eurozone sovereign debt crisis and the European Financial Stability Facility. European Central Bank member Nowotny was quoted as saying he believes inflation will remain above 2% for some months but will decline later this year and average 1.8% in 2012. Traders are also reacting to news that Egyptian President Mubarak may be stepping down from office as early as today. Euro bids are cited around the US$ 1.3505 level.
Â¥/ CNY
The yen depreciated vis-à -vis the U.S. dollar today as the greenback tested offers around the ¥82.25 level and was supported around the ¥81.10 level. Technically, today’s intraday low was below the ¥81.25 level, representing the 76.4% retracement of the ¥80.24 – 84.50 range. Former Bank of Japan Executive Director Masayuki Matsushima warned Japan is in a “bond bubble†that may burst in a few years if its debt burden is not offset by higher taxes. Last week, Standard & Poor’s downgraded Japan’s sovereign debt rating to AA-, warning the Kan government “lacks a coherent strategy†to address the country’s debt. Domestic Japanese investors hold 90% of Japanese government debt and they will be encouraged to purchase more Japanese government bonds. At the same time, however, bank lending decreased 1.8% last year, the first decline in five years. Bank of Japan today reported “A somewhat sensitive bias is likely to continue in financial markets for the time being, as market participants are expected to react nervously to economic indicators and changes to macroeconomic policies in each country. Caution in the markets is high because it’s difficult to foresee economic and financial structural problems in Europe being solved in the short term, and a massive amount of eurozone government bonds are scheduled to mature in the spring.†Earlier this week, BoJ Board member Kamezaki this week reported “There’s a high chance Japan’s economic slump will end quickly and the nation will return to a moderate growth path (around spring).†Kamezaki also added “The pause in the yen’s advance is also contributing†to the market’s perception of an economic recovery. Data released in Japan this week saw the January monetary base up 5.5% y/y, down from the prior reading of +7.0% y/y. Bank of Japan Governor Shirakawa was this week quoted as saying the central bank’s commitment to keeping rates near zero per cent will keep bond yields stabile as the economy strengthens. The Nikkei 225 stock index gained 1.08% to close at ¥10,543.52. The euro moved higher vis-à -vis the yen as the single currency tested offers around the ¥111.40 level and was supported around the ¥111.05 level. The British pound moved lower vis-à -vis the yen as sterling tested bids around the ¥131.25 level while the Swiss franc moved lower vis-à -vis the yen and tested bids around the ¥85.85 level. In Chinese news, the U.S. dollar was unchanged vis-à -vis the Chinese yuan today the greenback closed at CNY 6.5850 in the over-the-counter market. Liquidity was light on account of the Chinese New Year holiday. Data released in China this week saw January PMI manufacturing decline to 52.9 while January non-manufacturing PMI ticked lower to 56.4. January HSBC services PMI and January trade balance data will be released next week. People’s Bank of China is largely expected to raise official interest rates over the next several weeks. PBoC adviser Li this week reported the Chinese economy will continue to expand at a clip of at least 9.5% and said the inflation rate may exceed 5% in the first quarter.
£
The British pound depreciated vis-à -vis the U.S. dollar today as cable tested bids around the US$ 1.6035 level and was capped around the US$ 1.6170 level. Technically, today’s intraday low was below the $1.6058 level, representing the 23.6% retracement of the $1.5344 – 1.6277 range. Data released in the U.K. today saw January Halifax house prices up 0.8% m/m and data released earlier this week included an improvement in January PMI services. Data to be released next week include the BRC retail sales monitor, January RICS house prices, December trade balance, December industrial production, December manufacturing production, and January producer prices inflation. Bank of England’s Monetary Policy Committee is expected to keep its benchmark Bank Rate unchanged at 0.50% next week and its asset purchase program unchanged at £200 billion. Two MPC members voted for a rate hike in January and given the elevated rate of inflation, other MPC members could join the call for higher rates next week. Former MPC member Barker said the BoE has suffered a “modest loss of credibility†on account of the central bank’s response to higher inflation. The more hawkish members of Bank of England’s Monetary Policy Committee made news this week when Deputy Governor Bean reported “We may well have to respond to (higher commodities prices) by keeping domestically-generated inflation lower. Whether it dents confidence depends on why it happens: if we raise rates because the economy is growing quite strongly and the recovery is entrenched then that’s a ‘nice’ rise in interest rates and unemployment will be coming down. On the other hand if it is in response to a spike in oil prices that we think is likely to persist and inflation is becoming embedded that is not a nice reason to raise interest rates, but we would have to do it.†MPC member Sentance was also hawkish in saying once the inflation “genie is out of the bottle,†the U.K. will face a “hard and painful†job of achieving price stability. NIESR earlier this week reported the central bank is likely to raise rates three times this year to 1.25% by the end of 2011. Cable bids are cited around the US$ 1.5965 level. The euro appreciated vis-à -vis the British pound as the single currency tested offers around the £0.8475 level and was supported around the £0.8420 level.
CHF
The Swiss franc depreciated vis-à -vis the U.S. dollar today as the greenback tested offers around the CHF 0.9595 level and was supported around the CHF 0.9450 level. Technically, today’s intraday high was right around the CHF 0.9592 level, representing the 38.2% retracement of the CHF 1.0065 – 0.9299 range. Data released in Switzerland today saw January foreign currency reserves increase to CHF 207.9 billion and it is not believed Swiss National Bank conducted franc-selling intervention last month. Data to be released next week include the January unemployment rate, January SECO consumer confidence, and January consumer price inflation. Data released in Switzerland this week saw the December trade balance expand to CHF 1.93 billion from the revised prior reading of CHF 1.79 billion. Swiss banking giant UBS reported it expects Swiss National Bank will begin raising its benchmark rate in June by 25bps to 0.5%, three months later than previously expected. Former Swiss National Bank Chairman Roth this week was quoted as saying “The problem is less in the advance of the franc but with the speed of the movement in 2010. But wouldn’t the situation have been even worse if the SNB hadn’t intervened? Those who now criticize its actions should look at the facts and measure the associated risks.†Earlier this week, SNB member Jordan verbally intervened against the franc’s strength saying “For Switzerland’s export industry, such a strong franc is a big and barely tolerable burden. Given the importance of the export sector for the overall economy, its problems are also showing a negative impact on overall economic growth.†U.S. dollar offers are cited around the CHF 0.9775 level. The euro appreciated vis-à -vis the Swiss franc as the single currency tested offers around the CHF 1.2960 level while the British pound moved higher vis-à -vis the Swiss franc and tested offers around the CHF 1.5320 level.
Technical Outlook at 1330 GMT (EST + 0500)
(Bid Price) (Today’s Intraday Range)
EUR/ USD 1.3630 1.3642, 1.3616
USD/ JPY 81.63 81.69, 81.49
GBP/ USD 1.6092 1.6171, 1.6080
USD/ CHF 0.9492 0.9496, 0.9448
AUD/USD 1.0171 1.0195, 1.0138
USD/CAD 0.9860 0.9920, 0.9845
NZD/USD 0.7715 0.7747, 0.7714
EUR/ JPY 111.28 111.38, 111.06
EUR/ GBP 0.8467 0.8472, 0.8422
GBP/ JPY 131.41 131.93, 131.25
CHF/ JPY 85.96 86.38, 85.92
Support Resistance Support Resistance
EUR/ USD USD/ JPY
L1. 1.3575 1.3880 81.55 84.60
L2. 1.3360 1.4025 80.80 85.85
L3. 1.3275 1.4425 79.30 87.30
GBP/ USD USD/ CHF
L1. 1.5810 1.6190 0.9320 0.9775
L2. 1.5645 1.6300 0.9145 0.9965
L3. 1.5320 1.6430 0.8860 1.0120
AUD/ USD USD/ CAD
L1. 0.9820 1.0170 0.9785 1.0140
L2. 0.9720 1.0365 0.9590 1.0355
L3. 0.9540 1.0440 0.9480 1.0585
NZD/ USD EUR/ JPY
L1. 0.7455 0.7840 110.40 114.25
L2. 0.7380 0.7975 109.60 115.65
L3. 0.7210 0.8220 107.20 118.05
EUR/ GBP EUR/ CHF
L1. 0.8375 0.8705 1.2810 1.3115
L2. 0.8260 0.8820 1.2735 1.3285
L3. 0.8110 0.8910 1.2560 1.3495
GBP/ JPY CHF/ JPY
L1. 129.00 135.70 85.50 89.75
L2. 127.10 138.10 84.00 90.90
L3. 125.60 139.85 82.20 92.30
SCHEDULE
Friday, 4 February 2011
all times GMT
(last release in parentheses)
0500 Germany December import price index (1.2% m/m)
0500 Germany December import price index (10.0% y/y)
0500 UK January Halifax house prices (-1.3% m/m)
1000 Italy January consumer price index
1200 Canada January employment, net change (22,000)
1200 Canada January unemployment rate (7.6%)
1330 US January non-farm payrolls, net change (103,000)
1330 US January unemployment rate (9.4%)
1330 US January average weekly hours worked (34.3)
