After firm gains on Tuesday a disappointing US job figure pushed the Dollar to weekly lows. The ADP employment figure monitoring private hiring has shed 23k jobs against market consensus of a 40k rise. The highly regarded figure which is considered to be a good indicator for the key Nonfarm payroll which follows has shaken investors’ confidence on the US job market recovery with market players fearing Friday’s nonfarm figure could majorly disappoint. Investors are eyeing the US job market very closely for 2 major reasons, the health of the US job market is the main factor affecting the Fed’s rate policy moreover since around 2/3 of the US economy is consumer spending, only an improving job market can support a recovery in customer spending.
Dollar selling accelerated on upbeat EU inflation- Meanwhile in the EU the inflation figures released showed EU inflation rose to 1.5% yy up from 0.9% yy in February mainly attributed to the recovery in energy prices. Although rate hikes in the EU and the US still look remote with FX traders targeting the end of 2010 for the first tightening step, the FX sentiment is fluctuating alongside investors’ bets which side will raise rate first. With the weak US jobs figure denting US tightening bets and the EU upbeat inflation heating up speculations on rate hikes in the Euro zone by the end of 2010. The EUR/USD gain was well supported with Euro rising strongly from as low as 1.3414 to its weekly high at 1.3548.
Ahead of the NFP figure in Friday- Market is eyeing a 200k gain in the Nonfarm figure and any figure below will be considered a disappointment. Although the Dollar was sold heavily after the US ADP employment figure the consensus is still that the US recovery is to outpace that of the Euro zone. If the Nonfarm figure will be in line with expectations the Dollar which currently trades close to its support levels could rebound very quickly. The effect on Friday might be diluted as the US stock markets will be close for a holiday, but the gap is expected to be closed on the following Monday. A disappointment from the figure will move the Dollar to retest its support levels as investors’ confidence in a US job market recovery could be shaken.
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This news item was republished from eToro Forex news website
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This week the US economy will gather most of investors’ attention as the week will be loaded with highly significant market moving figures. The Week will open with the US PCE price index one of the Fed’s leading indicators for inflation and a known factor in the Fed’s inflationary outlook. The PCE is expected to point on a balanced inflationary picture with consensus bets pointing on a 2% gain for the PCE index yy in line with the Fed target of 2% annual inflation. Consumer confidence will follow alongside US manufacturing and housing data. The Consumer confidence is expected to still point on subdued consumer spending with investors eyeing a reading of 50 which is considered the minimal reading for consumer expansion. In the Housing sector the Case Shiller index is expected to show dented housing prices alongside the mortgage market index which is expect to be dented as well amid tight credit conditions which continue to pressure on households. The ADP figure will gather the center of attention as investors see the ADP figure as a good barometer for the Nonfarm and unemployment figures which follow after.ADP employment is expected to rise by 40k after falling by -20K the month before, thus confirming investors’ assessments that the US Job market is slowly stabilizing and possibly recovering.
Euro fell under major support levels amid failure of EU members to conclude a rescue plan for Greece. Germany the largest economy in the EU is strongly opposing any sort of a Greek bailout. Latest polls show a large portion of Germans not only opposes any sort of a Greek bailout but actually think Germany is better off without Greece in the Euro zone. With the EU strongly divided ahead of the EU summit on Thursday and Portugal’s credit downgraded by Fitch to AA- , investors crowded heavy bids on the Euro pushing it below the 1.34 support against the Dollar and to an historic low of 1.423 against the Swiss Franc. Many other members of the EU are under debt watch such as Spain Portugal and even Italy, and investors’ willingness to pay a premium for the Euro against the Dollar is starting to fade.
UK CPI figures published today were lower than expected reading 3% YY against an expected 3.1%.Last month the BoE governor stated in his letter to the government that he still sees the long term inflation prospects for the UK as subdued with excess capacity in the UK alongside the weak consumer spending to dent customer prices. Nevertheless with the UK CPI reading 3.5% YY in January above the 3% higher rage of the BoE target the BoE governor also had to address the January high inflation figures and reluctantly outlined in his letter that if long term inflation outlook will exceed the 3% then the monetary committee could tighten policy. However with the current easing to 3% and the Core CPI falling to 2.9% the BoE low inflation scenario seem to be in place. The CPI figures are showing signs of sliding back to reasonable levels and investors fear over a premature rate hike in the UK have eased but not faded. The UK still faces a grim fiscal outlook with a debt of £857.5 billion, investors are eager to see wither the UK treasury will present a scheme to reduce the deficit thus avoiding a credit down grade and allowing the BoE to keep monetary policy loose to support growth. Therefore UK monetary and fiscal outlook still looks unclear.
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