Forex Investment and Currency Trading

FX Update
Change in Nonfarm Payrolls (Survey: -60k, Actual: -62k)
Unemployment Rate (Survey: 5.4%, Actual: 5.5%)
Change in Manufacturing Payrolls (Survey: -30k, Actual: -33k)
Initial Jobless Claims (Survey: 385k, Actual: 404k)
ISM Non-Manufacturing Composite (Survey: 51.0)
ECB rate announcement

USD
US payrolls released this morning highlighted a softening in the economy.  The data showed a broader loss of jobs, as unemployment in private service industries increased.  With both the unemployment rate and nonfarm payrolls coming in only slightly worse-than-expected, the data did not seem to greatly affect the FX markets as a whole.  In general, the payrolls report was overshadowed by the less-hawkish statement from the ECB.  The Euro has dropped quickly and the dollar is broadly stronger after the ECB indicated that a less hawkish interest rate policy could be enough to control inflationary pressures.

EUR/USD

As expected by the market, the ECB raised rates by 25bps.  The euro fell significantly against the dollar following the ECB’s accompanying statement, due to Trichet’s less-hawkish rhetoric.  Trichet did state that the Euro-area is experiencing a protracted period of high inflation and that price stability, disrupted by surging energy and food costs, is the ECB’s main objective.  However, by stressing the downside risks to growth, Trichet gave a more balanced view on the Euro-area economy.  Although Trichet stated that economic fundamentals of Euro-area are “sound,” data is showing serious risks to growth.  Final June Euro-area services and composite PMI was revised down from the flash estimate, signaling further loss in growth momentum at the end of the quarter.  And, as with other indicators, things are looking grimmer and grimmer outside Germany.  We now see growth below 1% SAAR per quarter, which raises the risk that shocks from high energy costs, policy tightening or ongoing strains in financial markets could push the economy into a technical recession.  The weaker-than-expected ECB statement will likely keep EUR/USD lower, thus reversing the previous EUR gains.    

GBP/USD
The pound weakened after a weaker-than-expected ECB statement gave way to broad dollar strength. GBP data releases this week have been very poor, with business expectations for the next six months falling to record lows. Though inflationary pressures remain significant, economic deterioration is likely to be the focus in the near-term. Despite the pound’s resilience to the collapsing housing market, downside risks remain.

Short term technical studies show support levels at 1.9710 and a resistance level at 2.0010. GBP is currently trading near the low of the day’s range (1.9811 – 1.9938).

USD/JPY 

JPY dropped to its lowest level since June 12 this morning following suit with EUR sentiment, after commentary from ECB president Trichet indicated that rate hikes to help combat current global inflationary pressures may not be as prolonged or pronounced as initially thought. JPY will most likely continue depreciating in the near-term as USD begins to gain strength across the board.
Short term technical studies show support levels at 105.00 and a resistance level at 107.10.

AUD/USD
The Australian dollar rose this morning, despite reports by a Statistics Bureau that said the country’s trade deficit was at $928 million in May, slightly larger than expected. The likelihood that the U.S. Federal Reserve will keep interest rates steady, preserving the yield advantage of the currency, should support AUD. Downside risks remain; a 13% decline in S&P’s index of steel producers yesterday has the potential to create negative sentiment.

Short term technical studies show support levels at .9520 and a resistance level at .9710. AUD is currently trading near the middle of the day’s range (.9583 - .9633).

USD/MXN  
MXN remained mostly range-bound yesterday and strengthened slightly today after the US payroll came out just around consensus. MXN is expected to continue appreciating in the near-term as Mexico will likely have a windfall of oil revenue for 2H ’08 as the Mexican economy has enough strength to maintain domestic fuel subsidies without incurring extra debt. The peso will look to the release of both manufacturing data and consumer confidence later today to help clarify the current MXN outlook.

MXN is currently trading near the low of the day’s range (10.3600 – 10.4042).

USD/BRL

Consumer prices in Brazil increased .93% in June according to the Economics Research Institute, indicating mounting inflationary pressures in the country.  According to ABN, the real, one of the best performing currencies so far this year, may relinquish some of its gains as a sharp decline in shares of US steelmakers may indicate that the commodities boom is set to burst.  BRL, a “commodity currency,” would be hit hard by a strong reversal in commodity prices.  So far this morning, BRL is weaker against USD.  

BRL is currently trading near the low of the day’s range (1.6019 – 1.6121).

USD/CAD
The Canadian dollar made significant gains yesterday as oil rose to a record level above $145; USD/CAD was also lower due to a weaker USD after the ADP release. However, CAD is weaker this morning, as commodities seem to making a slight turn.  USD is gaining some steam following the ECB rate announcement, sending USD/CAD higher.

Short term technical studies show support levels at 1.0000 and a resistance level at 1.0255.

Commodities Update
Oil reached a record high of $145.85/bbl this morning as investors retreated from weakening stock markets. However, Oil seems to be reversing some of its broad gains this morning.  Gold eased this morning as slightly stronger dollar decreased the metal’s attractiveness as a hedge.