In Europe, Industrial recovery slows but remains intact: the fall in January�s Euro-zone Manufacturing PMI to 55.5 from 56.5 was a little disappointing. Analysts are more likely looking at an interest rate rise from ECB in March and probably again later this year. In US, the drop in the ISM manufacturing index to a 3 1/2 year low of 49.3 in January, from 51.4, is an indication that the rebound in economic growth in Q4 will be slowing down. The markets had expected the index to improve further to 51.7. At this time, the direction of US growth remains hard to forecast, even if recent data have been strong, and it makes the Federal Reserve�s next decision difficult. Investors are watching G7 very carefully; the Yen gained across the board as speculation intensified that G7 finance ministers might discuss Yen weakness at nest week�s meeting…
News and Events:
The Dollar traded steady against the Euro and Yen on Thursday as investors grew cautious ahead of the forthcoming US payrolls report and the Group of Seven meeting next week. In Europe, Industrial recovery slows but remains intact: the sharp fall in January�s Euro-zone Manufacturing PMI to 55.5 from 56.5 is a little disappointing after the other better recent data releases. While this release was relatively weak, the PMI continues to point solid production growth ahead and suggests it is likely to encourage ECB from raising interest rates in March and probably again later this year. US inflation watch: the core PCE deflator increased by 0.1% in December and fell slightly to 2.2% from 2.3% annually. Otherwise, Personal Income increased by 0.5% in December while Personal Consumption increased by 0.7% causing the savings rate to fall slightly to -1.2%, from -1.0%. That breakdown shows that real consumption increased by only 0.3% in December, following 0.5% increases in both of the first two months of Q4. That slowdown reflects the big decline in gasoline prices at the start of the quarter which gave a big boost to spending in the first half of the quarter, but appears to already have been fading in the second. Analysts said real consumption growth is likely to slow more in Q1 2007. The drop in the ISM manufacturing index to a 3 1/2 year low of 49.3 in January, from 51.4, is another indication that the rebound in economic growth in Q4 will be slowing down. The markets had expected the index to improve further to 51.7. EurUsd was little lower at 1.3016 while EurJpy ended unchanged at 157.25 after pointing 156.59 low. UsdJpy was also unchanged at 120.83 rebounding from session low 120.11 done after the ISM report. While Investors are watching G7 very carefully; the Yen gained across the board as speculation intensified that G7 finance ministers might discuss Yen weakness at nest week�s meeting, a move that could trigger buying in the Japanese currency. Most high-yielding currencies fell against the Yen; AudJpy fell -2.6% to 93.51 in the last 8 days, and NzdJpy dropped -1.1% to 82.27. Against the Dollar, NzdUsd fell -1.03% to 0.6826 or a cumulative 2.55% in the last 8 days.
Today’s Key Issues:
GB 9:30 GMT: January Purchasing manager Index Construction expected 55 to 60.3 vs 57.5.
Euro 10:00 GMT: December Producer Price Index expected -0.1% to 0.2% vs 0% (MoM) and 3.9% to 4.3% vs 4.3% (YoY).
US 13:30 GMT: January Non-Farm Payrolls expected 150k vs 167K, Unemployment Rate expected 4.5% unchanged, January Hourly Earnings expected 0.2% to 0.3% vs 0.5% (MoM).
US 15:00 GMT: December Factory Orders expected 0.7% to 1.5% vs 0.9% and Factory Inventories expected 0.2% unchanged.
January final University of Michigan Confidence expected 93 to 99.5 vs 98.
US 15:00 GMT: US Treasury�s Paulson testifies on the US budget at House Ways and Means committee.
US 17:45 GMT: US Fed�s Bernanke speaks in Omaha.
The Risk Today:
EurUsd gains from 1.2866 are approaching resistance from last week’s 1.3050 (38.2% retracement of the 1.3368-1.2866 decline). A move above there would begin to relieve downward pressure from the early-December 1.3368 high, shifting focus away from the 1.2820 (61.8% retracement of the large 1.2481-1.3368 rally). Such a break would expose 1.3130 (61.8% retracement levels of the 1.3298-1.2866 decline).
GbpUsd continues its recovery from Wednesday’s 1.9482 lows, pushing through 1.9739 yesterday high. Minor resistances are still active at 1.9700 and 1.9736. Market is not far off 1.9750 (61.8% retracement of the 1.9917-1.9482 decline). Only a move above there would reasonably confirm a return of the underlying bull trend, opening the door for a run above the 1.9917 trend high.
UsdJpy�s notable setback from the 122.20 trend high has exposed the 120 and 119.90 former resistances. Only a break of this area would reasonably confirm a shift away from the bull channel that has carried this pair higher since the early-December 114.44 low. In this scenario, 119.25 (38.2% retracement of 114.44 to 122.20 rally) would be the focus.
UsdChf has defined resistance at 1.2573 Wednesday, exposing support at last week’s 1.2376 low. Penetration of this level would clearly end the bull channel from early-December 1.1881 low and expose 1.2309 (38.2% retracement of the rally from 1.1881 to 1.2573). For now key support stands at 1.2430 followed by minor 1.2400.
Resistance and Support: