Choppy trading ahead of NFP

Trading was choppy ahead of Friday’s much anticipated jobs report with both U.S. equities and the greenback ending lower – the DJIA closed -.34% to 12248 and the USD Index lost -.70% to around 74.33. U.S. data releases continued its recent trend of disappointments as Initial Jobless Claims printed higher than expected at +422k and Continuing Claims were also higher at +3.71M. U.S. 1Q Nonfarm Productivity printed better than expectations of +1.7% to +1.8% but was disappointing in its own right as the reading evidenced significant moderation from the +2.9% gain in the prior three months.

The greenback strengthened in early U.S. trading – EUR/USD traded from highs around 1.4480 to lows around the 1.4400 figure – but reversed course into the NY lunch. Reports of an EU agreement on Greece spurred on further USD losses which saw EUR/USD make an attempt at the 1.4500 figure. However, the single currency’s assault on the big figure proved to be short-lived as the EU commission denied reports of any such agreement effectively putting a lid on EUR/USD upside for the remainder of the NY session.

Lending additional weakness to the buck were comments from Moody’s Investors Services that the U.S. government’s Aaa credit rating may be placed under review for possible downgrade unless progress was made on increasing the debt limit by mid-July. Treasury Secretary Tim Geithner promptly responded by stating that Moody’s move meant Congress must act soon. The buck remained under pressure into the U.S. equity market close as its G10 counterparts drifted towards their daily highs – EUR/USD to around the 1.4500 figure and AUD/USD near the 1.0675 level.

Choppy conditions may continue ahead of tomorrow’s BLS release with the market expecting a print of around +165k for the headline number and +178k for private payrolls. Upcoming data in Asia-Pacific sees the release of New Zealand April Building Permits, Australia May AiG Performance of Services Index, China May Non-manufacturing PMI, and China May HSBC Services PMI. However, all eyes will be awaiting tomorrow’s U.S. NFP report as it should provide some further guidance on the state of the U.S. recovery, future Fed policy direction, and subsequently the fate of the dollar.

Source: Forex.com

02.06.2011