Daily Forex Analysis by Finexo.com 04/02/2010

Both Britain and Europe to announce rate decision, one day ahead of U.S Non-Farm Payrolls

Previous Sessions
• USD ADP Non-Farm Employment Change out at -22K versus expected -31K, prior -61K
• USD Non-Manufacturing PMI out at 50.5 versus expected 51.1, prior 49.8
• AUD Building Approvals m/m out at 2.2% versus expected -0.2%, prior 10.4%
• AUD Retail Sales m/m out at -0.7% versus expected 0.3%, prior 1.5%

Upcoming events:

• GBP Official Bank Rate (1200pm)
• EUR Minimum Bid Rate (1245GMT)
• USD Unemployment claims (1330GMT)
• CAD Building Permits (1330GMT)
• CAD Ivey PMI (1500GMT)

• USD Non-Farm Payment Change
• USD Unemployment Rate
• CAD Unemployment rate

Market Review

It is a very busy day ahead, as both the European Central Bank and the Bank of England are scheduled to announce their rate decisions.
Early this afternoon (1245GMT), the European Central Bank will announce its Minimum Bid Rate. The ECB, is expected to keep benchmark interest rates at its current record low level of 1.0%. This prediction come after Jean-Claude Trichet, president of the ECB, indicated that he would like wait for new growth and inflation forecasts in March before deciding when to step up the withdrawal of measures used to battle the financial crisis. Continual concerns over rising unemployment, in addition to increasing apprehensions that Greece’s fiscal problems could spread through the Euro zone, complicate the ECB’s efforts to return the euro-area economy to health.

The ECB announcement comes shortly after the Bank of England’s official rate decision (1200GMT). Analysts do not predict a rate hike- the BoE, is expected to leave the overnight rate at its historical low level of 0.5%. This decision comes out following earlier announcements, and indicators that that the UK emerged, barely, from the recession in the 4th quarter of last year.

The pressure is high for the Euro and the Pound, as these two highly anticipated rate decisions, come one day ahead of the U.S Non-Farm Payroll Change (announce tomorrow at 1330GMT), and follow yesterday’s release of a better than expected ADP Non-Foreign Payroll figure.

The release of ADP Non-Foreign Payroll, widely considered as an indicator for the NFP, fueled the dollar towards appreciating against both the Pound and the Euro. Following the release of the ADP figure yesterday, the EUR/USD, fell below the 1.4 mark, hitting 1.3960. This bearish reversal, further confirms that the Euro is on the cusp of entering a downwards trend against the dollar- any unexpected news in the ECB official bank rate today, could send the Euro spiraling downwards against its USD counterpart.

Moreover, the positive news in regards to U.S employment further caused the Pound to depreciate against the dollar. Yesterday, the GBP/USD tumbled from a 1.6070 session high to close at 1.59003.

For the first time in a long time, analysts are predicting an increase in the US Non-Farm payrolls of 10K. Last month’s Non-Farm Payrolls were disappointing and showed a loss of 85,000 jobs in the US in December. Hopes were already high for the Non-Farm Payrolls, but expectations increased exponentially when yesterday’s ADP Non- Farm Employment Change, was much better than expected. The ADP figure, which measures the jobs in the private sector, showed a loss of 22,000 jobs. While it is still a negative number, it is much lower than the expected loss of 31K, and lasts months loss of 61K.

Apart from increasing against both the GBP and the EUR, the positive results of the ADP figure, triggered the USD/JPY to rebound from 90.05 session low has extended to session high at 90.85 high.

The release of a better than expected positive result in the Non-Farm Payrolls on Friday will certainly further boost the dollar against its major currency counterparts, and raise chances of a future rate hike. While there have been many signs that the U.S is on the road to recovery (namely the higher than expected Q4 GDP, announced last week), a strong number in the NFP, will surely push the USD on the path to regaining some of last year’s traumatic losses.

Written by Finexo.com