Greenback Mixed Ahead of Job Report

* The dollar traded mixed on Thursday ahead of Friday’s US employment data. The Bank of England, the European Central Bank and the Bank of Canada left their key interest rates unchanged, as forecast, at 0.50%, 1.00% and 0.25%, respectively. US initial and continuing jobless claims fell modestly and Q1 nonfarm productivity rose more than expected. The May employment report tomorrow is expected to show the unemployment rate rising to a 25-year high of 9.2% from 8.9%; however, it always lags in recoveries so the rise would not be market-moving. Meanwhile, nonfarm payrolls are expected to fall 530K, still extremely high, but lower than January’s 749K decline, indicating that contraction in the labor market is abating. If job losses turn out to be significantly worse than expectations, the greenback could gain on renewed safe-haven bids. The USD/JPY was higher but below the 200-day moving average. Sterling fell, consolidating its recent gain. The Canadian dollar reversed some of yesterday’s losses after crude oil rose and the Bank of Canada said financial conditions in Canada improved significantly. The Australian dollar was little changed, above the important 0.80 technical level.

* The EUR/USD was little changed while the euro rose against the pound and yen after European Central Bank President Jean-Claude Trichet said he sees signs the worst of the eurozone recession has passed. The EUR/USD is in an upward sloping trading channel. If the support in the 1.41-1.40 area is broken, there may be a more significant consolidation. However, the trend is up.

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Financial and Economic News and Comments

US & Canada

* US nonfarm productivity increased more than expected at a 1.6% annual rate in Q1 2009, a large upward revision from a previously estimated 0.8%, final Q1 figures from the Labor Department showed. Nonfarm productivity advanced 1.9% y/y. Compensation per hour in the nonfarm sector rose at a 4.6% annual rate in Q1, up 4.1% y/y. Real (inflation-adjusted) compensation climbed at a 7.1% annual rate in Q1, up 4.3% y/y. Unit labor costs increased at a 3.0% rate in Q1, up 2.2% y/y. Manufacturing productivity in Q1 declined at a 2.7% rate, less than Q4 2008’s 4.6% decrease.

* US initial jobless claims in the week ending May 30 declined 4,000 to 621,000, in line with forecast, after the previous week’s upward revision to 625,000, according to data from the Labor Department. Continuing claims in the week ending May 23 unexpectedly fell 15,000 to 6,735,000, the first decline in almost five months, following the preceding week’s downward revision to 6,750,000. The insured unemployment rate was 5.0% for the week ending May 23, unchanged from the prior week’s downwardly revised 5.0%. Given some good news on initial and continuing jobless claims, payroll losses will likely lessen over the next several months.

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* Canadian building permits in April declined a less-than-expected 5.4% m/m after March’s upwardly revised 24.4% m/m gain, the largest since March 2007, data from Statistics Canada showed.

* Canada’s Ivey PMI unexpectedly fell to 48.4 in May from 53.7 in April, indicating purchases were lower, according to the Richard Ivey School of Business and the Purchasing Management Association of Canada.

Europe

* Eurozone retail sales increased 0.2% m/m in April, as forecast and the first gain in seven months, after March’s upwardly revised 0.1% m/m decline, according to figures released by Eurostat. April retail sales fell a less-than-expected 2.3% y/y, following March’s upwardly revised 3.4% y/y decrease.

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* UK house prices in May unexpectedly rose by the most since 2002, rising 2.6% m/m to an average of £158,565 ($260,000), after a downwardly revised 1.8% m/m decline in April, according to a Halifax report. May house prices fell 13.7% y/y. In the three months through May, house prices tumbled a less-than-expected 16.3% y/y, after a 17.7% y/y drop in the three months through April.

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Asia-Pacific

* Japan’s capital spending fell a less-than-expected 25.3% q/q in Q1 2009 after falling 17.3% q/q in Q4 2008, data from the Ministry of Finance showed. Capital spending excluding software dropped 25.4% q/q, the largest decline since records began in 1955, following Q4’s 18.1% q/q decrease. Profits in Q1 plunged a record 69.0% q/q.

* Australia’s trade balance unexpected showed a A$91 million ($73 million) deficit in April after a downwardly revised A$2.3 billion surplus in March, the Australian Bureau of Statistics said. Exports dropped 11.3% m/m in April to A$21.68 billion, the deepest decline since July 1997, while imports fell 1.7% m/m to A$21.77 billion.

FX Strategy Update

EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY
Primary Trend Neutral Neutral Negative Neutral Neutral Neutral Neutral
Secondary Trend Positive Positive Positive Neutral Negative Positive Positive
Outlook Positive Neutral Positive Negative Negative Positive Positive
Action Buy Buy Buy None None Buy None
Current 1.4185 96.55 1.6173 1.0684 1.0967 0.8024 136.97
Start Position 1.3149 95.69 1.4845 N/A N/A 0.6601 N/A
Objective N/A N/A N/A N/A N/A N/A N/A
Stop 1.3770 N/A 1.5390 N/A N/A 0.7670 N/A
Support 1.4000 94.00 1.6000 1.0500 1.0700 0.7800 128.00
1.3600 91.50 1.5500 1.0300 1.0500 0.7500 125.00
Resistance 1.4320 97.50 1.6500 1.1000 1.1300 0.8220 139.00
1.4550 99.50 1.7000 1.1300 1.1500 0.8500 142.00

Source: Hans Nilsson

04.06.2009