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Daily Video Recap: Dollar Continues to Stumble as ADP Jobs Report Points to More QE
Written by article default Wednesday, 06 October 2010 21:20
Summary: A US jobs report showed that private companies shed payrolls in September. That increased the prospect of quantitative easing by the Fed and pressured the US Dollar. In NY trading we saw the EUR/USD at a fresh 6-month high, USD/JPY breached a fresh 15-year low, USD/CHF fell to a new record low, and the AUD/USD climbed to a 26-month high.
Trasncript:
Main Theme – QE Concerns Pressure US Dollar
While overnight we saw stocks climbing in Asia and Europe, the US session came up against some weak data in the form of a jobs report showing private companies shed payrolls in September. The reading strongly undershot expectations and could mean that the September non-farm payroll report, due on Friday may be weak as well. What it does do is increase the speculation that the Federal Reserve will undertake stimulus, in the form of quantitative easing, which continues to pressure the US Dollar in currency markets.
Before the ADP report that resumed so-called QEII fears, the euro traded in choppy waters in morning New York trading after a downgrade of Irish government debt and renewed concern over a revised Greek debt figure.
In its aftermath we have seen the EUR/USD at a fresh 6-month high, USD/JPY breached a fresh 15-year low, USD/CHF fell to a new record low, and the AUD/USD climbed to a 26-month high.
USD/JPY – Yen Breaches Intervention Lows
The Yen for instance, benefiting from the weak US report breached a fresh 15-year low, moving below the levels at which the Japanese Ministry of Finance intervened in currency markets on September 15th. It looks like there won’t be any intervention until we get down to the 82 handle, and even then, it may be tough for Japanese authorities to intervene ahead of the weekend’s IMF meetings.
ADP Employment Change Drops 39K in Sept
Taking a look at that US ADP jobs report, we saw that private-sector employment decreased by 39,000 from August to September on a seasonally adjusted basis, with all the major sectors showing a deceleration in employment. The decline in private employment in September confirms a pause in the economic recovery already evident in other data. It’s the first month It’s the first decline in employment in 8 month, though the average monthly gains between February and August were small at 34K, which means there is no momentum in employment.
German Factory Orders Surge in August
In Germany’s however, we got a very good release in the form of factory orders, which surged 3.4% in August, almost 4 times the figure expected. The sharp rise was propelled by strong export demand, especially for “big-ticket” items like capital machinery which rose 6.7%, and 23% in the Euro region. Domestically, orders were actually down 0.5%. Factory orders act a leading indicator for the economy, and today’s release shows that the manufacturing sector is poised to have a strong end of the 3rd quarter.
EUR/USD – Moves Above 1.39
Now, with the continued theme of US Dollar weakness evident in today’s session, the EUR/USD pair consolidated its gains from yesterday, and then pushed to a fresh 6-month high. We now await the ECB meeting tomorrow, and Friday’s non-farm payroll report to see if this pair continues its strong rally. There may be some concern that the pair may be overbought, but with the Fed set for more quantitative easing, it may be hard for the greenback to reverse its recent losses.
EUR/GBP – Euro Extends Gains vs Pound
We see the Euro didn’t have as much trouble rallying against the Pound, climbing above this week’s high above the 0.8730 area. Zooming this pair out we see that the mid-September point was a real change for this pair as we broke above the 0.84 level and have rallied 350 pips since then. That was around the time that it became more clear that the BOE was gearing up for more quantitative easing as well.
GBP/USD – Pound Choppy Ahead of BOE
The GBP/USD, after moving to a new 2-month high at 1.5937, fell back down in European trading. The Bank of England meets tomorrow, and the MPC is considering whether to restart bond purchases. With the BOK already announcing new QE, and the Fed preparing its new round of stimulus, the BOE may follow as well. That even risk therefore is weighing on the Pound.
AUD/USD – Climbs to 26 Month High
Shifting to our global growth linked currencies, the AUD/USD moved above its recent resistance at the 0.9750 area, pushing up to the 0.9780 level in overnight trading before retreating to test the old level of resistance as support in the NY session. With the major central banks gearing up for quantitative easing, the Australian Dollar looks attractive, and has been rallying strongly the past month. Even though the RBA held rates steady in its meeting yesterday, the interest rate differentials favor the Aussie.
USD/CAD – Moving Towards Parity
The USD/CAD gained in favor of Canadian Dollar. We pushed below our support at 1.0150 overnight, pared down a bit in the US session because of the weak US jobs report, but then moved strongly in favor of the CAD again as the IVEY PMI report – a look at the economy – posted a very strong result. Zooming this pair out, we see that we come to important support now, that we have been unable to penetrate during the summer. If we break the lows from early August it means this pair will move to parity next.
USD/CHF – Fresh Record Low for the Pair
At the top of the broadcast we looked at the USD/JPY, two currencies usually linked to safe-haven. We saw the Yen gaining on the Dollar. Similarly in a look at the USD/CHF, we see that the Swissie continues its gains against the Dollar. This pair broke below parity two weeks ago, and after finding some support in the 0.9720 area, has now, in the past two session, moved below that.