Daily Forex Analysis by Finexo.com 04/03/2010

ECB and BoE key rate announcements today, followed by US Non-Farm Payrolls out tomorrow

Past Sessions:

• USD ADP Non-Farm Employment Change out at -20K, versus expected -15K, prior -60K (revised)
• USD ISM Non-Manufacturing PMI out at 53.0 versus expected 51.0, prior 50.5
• GBP Services PMI out at 58.4 versus expected 54.4
• EUR Retail Sales m/m out at -0.3%, predicted -0.3%, prior 0.5%
• AUD GDP q/q out at 0.9% versus expected 0.9%, prior 0.3%
• AUD Trade Balance out at -1.18B versus expected -1.57B, prior -2.25B

Upcoming Session:

• GBP Official Bank Rate (1200GMT)
• GBP Asset Purchase Facility (1200GMT)
• EUR Minimum Bid Rate (1245GMT)
• USD Unemployment Claims (1330GMT)
• CAD Ivey PMI (1500GMT)
• USD Pending Home Sales m/m (1500GMT)


USD Non-Farm Employment Change (out Friday at 1330GMT)

Market Commentary:

The Euro rose 0.64% to $1.36938 against the US Dollar yesterday as Greece unveiled a new austerity package. Since news broke of Greece’s 300bn Euro debt, the single European currency has been tumbling against its major counterparts – striking a 10 month low against the dollar, this past Tuesday.

Yesterday the Greek government unveiled an austerity package worth 4.8bn Euros -a host of tax increases and spending cutbacks. Greek government officials hoped this will bolster the Euro in international markets and convince European leaders that they are doing enough to merit a possible bailout.

Retail Sales in the 16 country zone slipped in January, raising new concerns about the strength of the area’s economic recovery. According to Eurostat, sales volume within the Euro Zone fell 0.3% from December and was 1.3% lower than in January 2009. While the monthly drop in sales was weaker then the market expectations of -0.5%, economists warned that sales could continue to fall in February.

The weakness of this data cemented expectations that the European Central Bank will keep its benchmark interest unchanged at its current record low level of 1.0% (announced later today at 1245GMT). The announcement will be followed by a press conference and there is speculation that the ECB may announce that it will lend covered bonds to financial institutions as part of a strategy to increase collateral. The press conference will be closely watched by traders as it has the potential to cause huge volatility in the market due to the off the cuff format.

Across the Channel the British Pound rose across the board, appreciated against 13 out its 16 major currency counterparts – including gaining a record 0.89% against the USD, to close at $1.50959. This abrupt increase came after the Services PMI unexpectedly jumped to 58.4 from 54.5 in January. The UK dominant services sector expanded sharply to more-than-a-three-year high in February, boosted by strong new orders and business activity- adding evidence that the first-quarter GDP grew at a faster pace than in the final three months of 2009. According to senior economists at the Markit, this latest piece of data highlights the underlying trend that in the private sector remains positive, and is on course to deliver a quarterly expansion above 1.0% in the first quarter. According to economists, this positive survey will reinforce the expectation that the Bank of England’s Monetary Policy Committee (MPC) will not be extending its £200bn quantitative easing (QE) program (1200GMT).

At noon today, the BoE will announce whether or not it will raise its benchmark rate from its record low level of 0.5%. Analysts predict that the central bank is unlikely to raise change interest rates, as any raise in the cost of borrowing could jeopardize the country’s fragile economic recovery.
On the other side of the Atlantic, U.S companies, in February, cut the fewest amount of jobs in the past two years. Yesterday’s ADP Non-Farm Employment Change reported decline of 20,000, slightly higher than analysts’ prediction of -15,000, follows a revised 60,000 drop in the prior month. The results of the ADP show that companies are still hesitant to add workers until they see sustained gains in sales as the U.S emerges from the worst recession since the 1930’s. This ADP report is generally considered a predictive index for Friday’s highly awaited Change in Non-Farm Employment Change. After a slight improvement in January, the number of employed Americans is expected to fall by another 40,000.

The U.S economy continued to show signs of recovery yesterday as the, ISM non-manufacturing index rose to its highest reading since December 2007. The index increased to 53 in February from 50.5 in January – a sign that the pickup in the manufacturing is trickling down into the rest the rest of the economy.

Later today, the National Association of Realtors will announce the monthly Pending Homes Sales. The number of contracts to buy previously owned U.S. homes is predicted to have risen a mere 1.4% in January, showing the extension of a tax credit is producing a limited effect on the housing market. The renewal of a government incentive to first-time buyers, originally due to expire at the end of November, and its expansion to include current owners has yet to lure buyers back into the market after helping boost sales in 2009. A lack of jobs and mounting foreclosures have depressed confidence, indicating housing will take time to rebound.

The US Dollar closed down against major currency counterparts, particularly commodity base currencies. The CAD advanced for a fourth consecutive day against the greenback, gaining a total of 0.438% over the course yesterday, as higher crude jumped to $80.66/barrel and gold touched its highest level since January 15th. Later today, Canada will release its Ivey PMI- generally considered a leading indicator of economic health.

The week will cap off tomorrow with the release of the U.S unemployment rate – expected to increase to 9.8%, from its current level of 9.7%.

Written by Finexo.com