U.S. economic data turned in negative numbers yesterday and the USD promptly gained in value. This is not a riddle, what also took place was a stiff downturn in the equity markets. Coupled with the notion that the USD was trading at the low end of its range against most of the majors in recent sessions, it stands to reason that the greenback was due for a positive day. The question now is if this was a one day enterprise or will turn into something more. The ADP Non Farm Employment Change numbers turned in a figure of minus 532K, worse than the anticipated decline of -525K. The ISM Non Manufacturing PMI survey was also on cue and brought in a reading of 44.0 compared to the estimate of 45.1. Additional releases were equally unimpressive with worse than expected numbers from Factory Orders. The poor ADP outcome may have been enough to stem � on Wednesday at least � the momentum of the equity markets and give the USD impetus.
Today weekly Unemployment Claims data will be published and the projected result is 620K, which would be a slight improvement on last week�s outcome. Essentially what we are seeing is the table being prepared for tomorrow�s critical Non Farm Employment Change report from the U.S. government. Employment concerns are a critical factor in the U.S. and the sentiment it generates within businesses and consumers alike cannot be downplayed. The U.S. like its counterparts has brought forth a groundswell of officials to speak about the stability the economy is now experiencing, but there remains a legion of investors who are not as optimistic. For the past two months the U.S. equity markets have turned in a rally and we may be approaching the witching hour when Wall Street has to look itself in the mirror. The USD got a whiff of strength yesterday but one day of positive returns does not make a trend and the greenback could still face pressure today.
The EUR faced some downward draft on Wednesday, this after a slew of better than solid sessions. Today the European Central Bank will be announcing their key interest rate and it is widely expected they will keep the current rate in place. The question that investors will be looking to answer is what President Trichet has on his mind during his press conference which is held after the official rate proclamation. Yesterday the broad European Final Services PMI data was released and it produced a 44.8 reading, a mere fraction above the anticipated number of 44.7. The European Central Bank will get the opportunity to discuss the recession that is clearly affecting the continent today. It stands to reason that the ECB will offer a sunnier version than the one that many economists who are not connected to government offices have. Tomorrow will be a quiet day of data from the European Union and this will leave the ECB and Claude Trichet as the focal point for investors. The EUR has had a solid gain in value the past month but this could be coming at the expense of the European Union citizens and export businesses. ECB President Trichet will be the lynchpin for traders today and his comments will be imperative for the entire market.
After a string of strong days, the Sterling took a breather on Wednesday and lost value to the USD. The Services PMI release turned in a number of 51.7, which was far better than the expected estimate of 49.4. Today the Bank of England will release their key interest rate but no change is expected. Investors will look to see if any comments are forthcoming on continued quantitative easing but are not expecting much in the way of a sea change. It appears that the Halifax HPI will finally be released today and it has a forecast of minus -0.1%. Tomorrow the U.K. will publish its PPI Input and Output data. Barring any unforeseen surprises from the Bank of England today, the GBP could find itself trading in a dollar centric mode. The BoE like all of its counterparts has reached the bottom of its barrel regarding its ability to enact further interest rate cuts and is now in a state of wait and see.
The JPY continued to loss a little steam against the USD on Wednesday but its trading was a consolidated affair. The results of international bourses were negative yesterday and the JPY continues to find itself moving in a manner that is perceived to be too strong but with little ambition of breaking free from its range. Gold lost value yesterday and sank from the upper reaches of it climb towards 1000.00 USD, it finished the day around the 967.00 USD mark. The price of Gold continues to show that it has begun trading again in a time honored inverse pattern compared to the greenback.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst