USD/JPY Likely to Test Long-term Downtrend

* The dollar reversed overnight losses on Wednesday. ADP estimates showed the smallest employment decline in two years, suggesting the US is on the brink of positive job growth amid a steady economic recovery. US service industries grew for the fourth time in five months. The S&P 500 declined 6.04 to 1,097.28. The euro initially rose as the European Commission endorsed the Greek fiscal program. However, scheduled strikes in Greece to protest the austerity measures and concerns about the fiscal situation in Portugal and other PIGS countries reversed the euro’s gains. Portuguese borrowing costs soared after an auction of government bonds went poorly. The European Central Bank is expected to keep its benchmark interest rate at 1.00% at Thursday’s meeting and continue to outline its exit strategies. Sterling fell after the UK services sector showed a slower-than-expected expansion. The Bank of England is expected to pause in its asset purchase plan and leave the door open for possible renewal of its asset purchases should the UK economic recovery weaken. The Australian and Canadian dollars were pressured by lower commodity prices.
* The USD/JPY rose on the better-than-expected ADP employment report. The pair has found support in the 90 area. A potential inverted head-and-shoulder bottom is developing. A new attempt to penetrate the long-term downtrend may reverse the pair’s two-and-a-half-year decline. A penetration of the 93-94 area resistance will lead to a very bullish USD/JPY outlook.


Financial and Economic News and Comments

US & Canada

* US private-sector payrolls declined 22,000 in January, the fewest in two years, according to estimates by Automatic Data Processing, Inc. and Macroeconomic Advisers, LLC. December data was revised to show a decline of 61,000, down from a previous estimate of 84,000. The February 5 employment report from the Labor Department will likely show a modest gain in overall payrolls for January, with the unemployment rate unchanged at 10.0%.


* The ISM US non-manufacturing index increased to a lower-than-expected 50.5 in January from a downwardly revised 49.8 in December, indicating US service industries expanded for the fourth time in five months, data from the Institute for Supply Management showed. All of the major sub-indexes were either up or above the 50 expansion mark in January. The business activity index declined to 52.2 from 53.2; however, remaining solidly above the 50 growth level. The new orders index advanced to 54.7 from 52.0, suggesting new orders expanded at a faster pace. The employment index increased to 44.6 in January from 43.6 in December, indicating employment conditions improved to the highest level since August 2008. The supplier deliveries index was unchanged at an expansion-level 50.5. Prices continued to increase in January, with the prices paid index rising to 61.2 from December’s 59.6.

Europe

* Eurozone retail sales unexpectedly remained unchanged m/m in December after a revised 0.5% m/m decline in November, according to data from Eurostat. December retail sales slid 1.6% y/y, easing the pace of declines following November’s revised 2.0% y/y decrease. The average volume of retail trades for 2009 was down 2.3%, compared with 2008.


* The eurozone composite PMI declined to 53.7 in January (vs. 53.6 preliminarily reported on Jan. 21) from 54.2 in December, final January PMI data from Markit Economics showed, indicating euro-area manufacturing and service industries expanded for a fifth consecutive month but at a slightly slower pace. The services PMI slid to 52.5 (vs. preliminarily reported 52.3) from December’s 26-month-high 53.6.
* The German services PMI slipped to 52.2 in January (vs. 51.2 preliminarily reported on Jan. 21) from 52.7 in December, indicating the German services expanded at a slightly slower pace, according to final January PMI data from Markit Economics.
* The CIPS/Markit UK services PMI declined to a lower-than-expected 54.5 in January from 56.8 in December, indicating the UK services sector expanded for a ninth straight month but at a slower pace, according to data from the Chartered Institute of Purchasing and Supply and Markit Economics.
* The Nationwide UK sentiment index increased to a higher-than-expected 73 in January from an upwardly revised 70 in December, indicating UK consumer confidence improved remarkably from January 2009’s 39 level. The present situation index increased to 23 in January from 20 in December. Consumer expectations in the next six months for the economy rose, with the expectations index rising to 107 from 103.
* UK shop price inflation increased to 2.3% y/y in January from 2.2% y/y in December, the British Retail Consortium reported. Food inflation eased to 2.9% y/y in January from 3.7% y/y in December while non-food inflation rose to 1.9% y/y from 1.4% y/y.

* Australia’s trade deficit widened less than expected to A$2.252 billion ($1.98 billion) in December from a revised A$1.728 billion in November, according to figures from the Australian Bureau of Statistics. Exports grew 4.0% m/m to A$19.8 billion in December. Imports rose 6.0% m/m to A$22.0 billion, the largest monthly gain since May 2008.

Source: Hans Nilsson

03.02.2010