A day after the 200 point collapse EURUSD bulls continued to lick their wounds as the pair tried to consolidate around the 1.5700 level in quiet holiday trade.
[B]Talking Points[/B]
[B]• Japanese Yen: Very tight 106.60-106.80 range in quiet trade
• Euro: Continues to smart from yesterday’s ECB press conference
• British Pound: Consolidates at 1.9800
• Canadian Dollar; Ivey on tap
• US Dollar: July 4th holiday[/B]
A day after the 200 point collapse EURUSD bulls continued to lick their wounds as the pair tried to consolidate around the 1.5700 level in quiet holiday trade. Today’s July 4th celebration in US will most likely result in a lackluster North American session with little flow as dealing desks in New York maintain only skeleton crews.
Yesterday’s combination of inline NFP results and much less aggressive rhetoric from Jean Claude Trichet created the perfect recipe for a reversal. On the US front the market was primed for a -100K print given the preponderance of negative employment data from a variety of pre-NFP releases. Therefore, a consensus print of -62K was seen as positive dollar news on a relative basis halting its decline.
However the true cause of the EURUSD vertical drop was Mr. Trichet’s post rate hike press conference in which the ECB chief uttered the four little words, “I have no bias”, that killed the euro. The unit’s latest rally has been driven almost exclusively by higher yield expectations. As we noted at the start of the week, the key question for the currency market vis a vis the euro was one and done or more to come? After Mr. Trchetr press conference the “one and done” scenario appeared far more likely taking all the momentum out of the euro rally.
With little economic news on the calendar and summer holiday season in full swing, the pair may now settle into a grinding range between 1.5400-1.5800 as traders look for new themes to develop. Meanwhile on the economic front tonight’s news out of the EZ only served to confirm the slowdown thesis as German Factory orders declined by -2.0% versus forecast of 2.0% gain. If the data from the EZ continues to deteriorate it will become progressively more difficult for the ECB to consider yet another rate hike this year and in the near term the unit could easily weaken for another couple of hundred points more s momentum players exit the trade.
Nevertheless, the data from US leaves little to cheer about, The NFP report was hardly encouraging showing a sixth consecutive monthly loss of jobs with the forward indicators suggesting that the economic data may only get worse, Under those conditions the Fed may have a very difficult time raising rates in September and once the market reaches that conclusion the pair may resume its rally as interest rate differentials take centre stage once again.
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