[B]Talking Points
• Japanese Yen: lower Nikkei keeps yen bid pair below 105.00
• Euro: consolidates at 1.5450 after yesterdays rout PMI Services hangs above 50
• Pound: PMI services drops below 50
• US Dollar: ADP on tap[/B]
Euro Holds Ground at 1.5450 As Focus Turns to Trichet
After a thorough drubbing yesterday which saw the euro lose nearly 200 points to the dollar, the unit stabilized at the 1.5450 level for most of Asian and European trade as the pair remained in a tense standoff between bargain hunters and momentum players looking to push the pair closer to the 1.5000 figure. Yesterday’s unusually strong remarks by Fed Chairman Ben Bernanke in defense of the dollar took currency traders completely by surprise, producing a major change of sentiment in the market.
Whether this change of trend will last remains an open question. Chairman Bernanke hinted that US interest rates are unlikely to decline any further and that piece of news rallied the dollar through out the day. However, the Fed’s ability to make good on its word is contingent on a stable US economy.
If US labor markets show significant deterioration, most specifically if NFPs print a –100K or greater job losses, the Fed may have no choice but stimulate further even in the face of dangerously high inflation. To that end today’s ADP data may provide an early clue to Friday’s payroll number, although the report has been woefully inaccurate in the past and markets are likely to view its reading with skepticism regardless which way it prints.
In the meantime, data from EZ offered little help to the euro. EZ PMI Services managed to remain above 50 boom/bust line, but only just so, while Retail Sales fell –0.5% versus expectations of a rise of 0.2% None of these data points are likely to change the attitude of ECB chief Jean Claude Trichet who remains unrepentantly hawkish, but they do form a clear picture of a slowdown in the region and suggest that EURUSD will continue this grinding range trade for the foreseeable future as both regions face a series of economic problems.
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