The Euro reached as high as 1.3885 on the back of a positive labor report which showed unemployment easing back to 8.2% from 8.3% as the economy only lost 1,000 jobs. Economist were expecting German companies to slash 64,000 workers from their payrolls as falling demand for exports continues to weigh on revenues.
[B]Talking Points
• Japanese Yen: Lower On Japanese Demand For Carry
• Pound: Choppy After Failing To Hold 1.6000
• Euro: German Unemployment Falls To 8.2%
• US Dollar: Durable Goods On Tap
[U]
Euro Reverses Losses On Positive German Employment Report, Yen Falls As Optimism Improves[/U]
[/B]The Euro reached as high as 1.3885 on the back of a positive labor report which showed unemployment easing back to 8.2% from 8.3% as the economy only lost 1,000 jobs. Economist were expecting German companies to slash 64,000 workers from their payrolls as falling demand for exports continues to weigh on revenues. Meanwhile, the Bloomberg retail PMI indicator fell to 47.1 from 48.4 as weak labor conditions in the region continues to cause consumers to retrench. This was evident as the Euro-zone consumer confidence reading remained unchanged at -31. However, economic confidence which is the more closely watched figure improved to 69.3 from 67.2 as low interest rates and government spending is raising the outlook for future growth. The single currency reversed some of its losses from yesterday and continues to find support after the unemployment figures
The stabilization of the German labor market will go a long way in helping the Euro-zone get back on track and adds to the positive signs that the recession is bottoming. Indeed, ECB Vice-President Lucas Papademos stated “In the past few weeks [data]…suggest that the pace of decline in economic activity is moderating and the euro area is stabilizing.” However, he would also caution that economic activity in 2009 will remain very weak which could start to impact Euro price action if we start to see other economies start to show signs of growth in the second half of the year. Committee member Ewald Nowotny reiterated those sentiments by saying that although he sees signs that the economy is bottoming, growth will remain weak after the crisis is over.
The USD/JPY continued it s bullish momentum from yesterday’s U.S, session through Asian trading which pushed the pair just shy of the 200-Day SMA at 97.20. Japanese demand for dollar denominated assets on the back of an improving outlook for the global economy has been a steady driver of price action. The Yen didn’t receive any support from an improvement in retail trade of 0.6% in April. The improvement in domestic demand is another sign that confidence is rising in the country. Therefore, we may start to see the demand for carry start to pick up which could signal more weakness ahead for the Yen.
It has been a mixed bag for the dollar overnight as its earlier gains against the Euro and pound have been reversed and it continues to see momentum versus the Yen. Scanning the headlines you can see the conflicting sentiments as surging bond yields are causing fear that government efforts aren’t working and will reduce the chances of a recovery, while improving fundamental data and optimism is increasing its chances. The expected 0.5% rise in U.S. durable goods orders should add to the improving outlook for a global recovery which could weigh on the dollar as risk appetite picks up. U.S. futures are pointing toward a higher open despite the weakness in Europe which may be in anticipation of the positive fundamental data. Initial jobless claims and new home sales are also due for release and are forecasted to improve mildly which will add to the increasing optimism.
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To discuss this report contact John Rivera Currency Analyst: <[email protected]>
