June 5th 2009, Risk Event Fireworks A Possibility

The USD turned in a mixed day among the major currencies except for its strong results against the GBP. The weekly Unemployment Claims data was published on Thursday and produced a number of 621K, which was only a smidgeon worse than the expected outcome of 620K. Today the ever important Non Farm Employment Change results are due and they are estimated to have a figure of minus -520K compared to last month�s statistic of -539K. The U.S. equity markets gained on Thursday. The Unemployment Rate from the U.S. will also be released today and it is forecasted to be 9.2%, the previous outcome was 8.9%. If the jobless rate reaches the forecast it will be the worse number in twenty five years.
Unemployment and the reactions that it can cause for market sentiment can be significant. The returns in the U.S. stock markets the past two months have been good but skeptics have pointed to a lack of underlying fundamentals. The bulls run has played a role in causing the USD�s loss of value as investors have increasingly looked for risk appetite not wanting to be left out of the rally. The combination of the employment data and the rather questionable outlook on Wall Street offers the opportunity for traders to make a bold choice. Volatility could become a factor in currency trading today if the Non Farm Employment Change numbers surprise in a negative fashion. With so much talk of �green shoots� and stability already factored into the equity markets it stands to reason that if equities should get a dose of genuinely bad news that it would be bad for Wall Street and interestingly enough � good for the USD. Today�s data is a risk event that could produce fireworks. The USD seems to have found some better footing the past couple of days and it awaits a fresh wave of impetus to push it further.

The EUR turned in a rather strong day of range trading but basically found itself where it started as the news from the ECB meeting met expectations dead on. The European Central Bank did not change their interest rate and President Trichet essentially offered the sunnier side of the economic outlook as anticipated. The broad European Industrial Production numbers will be published today and it is expected to produce a result of minus -0.6%, which would be an improvement on the previous outcome of -2.0%. In a developing story, Latvia�s economic woes continued to become fodder for speculation yesterday and a fear of contagion filters through some investment circles in the Baltic and Scandinavian countries. The EUR is faced with the prospect of recessionary pressure and an economic policy that remains under question. The EUR could find itself trading in a dollar centric mode going into the weekend.
The Sterling didn�t exactly collapse considering that it has had a strong run the previous two months against the USD, but it did lose a lot of ground. The developing saga of the Labor Party�s spiraling chaos in the midst of the scandal because of ministerial misuse of expenses has continued to grow. An avalanche of resignations has besieged Gordon Brown�s cabinet and the prospects for his departure as leader of Labor has grown. The Bank of England did meet yesterday but didn�t offer any real news. The key interest rate was kept the same and the BoE said they will use the next few months to finish this stage of the quantitative easing that they started a couple of months ago. The Sterling possibly found itself yesterday in a marketplace that was looking for an excuse to take the GBP lower. After such a solid upward trend being established in such a questionable economic period, the GBP may have been due to tumble some. There will be no major data released from the U.K. today but investors will need to continue to monitor the growing political crisis.
The JPY picked up ground against the USD as the trading day came to a close on Thursday in rather cautious trading. The JPY and USD pair have moved in a relatively consolidated range the past month and performed a rather lackluster dance. Gold rebounded from its drop on Wednesday and found itself above the 980.00 USD mark on Thursday.

Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst