Daily Forex Analysis by Finexo.com 08/03/2010

Past Events:

• USD Non-Farm Employment Change out at -36K, versus expected -56K, prior -26K
• USD Unemployment Rate out at 9.7%, versus expected 9.8%, prior 9.7%
• USD Average Hourly Earnings m/m out at 0.1%, versus expected 0.2% prior 0.2%
• GBP PPI input m/m out at 0.1%, versus expected 0.1%, prior 1.3%
• CHF Retail Sales y/y out at 4.4%, versus expected 2.4%, prior 4.4%

Upcoming events:

• CHF Retails Sales y/y (815GMT)
• EUR German Industrial Production m/m (1100GMT)
• CAD Housing Starts (1315GMT)

Market Commentary:

Last Friday, the US Bureau of Labor Statistics released the highly anticipated Non-Farm Employment Change, marking the end of one of the busiest weeks for the forex market this year.

While the U.S Non-Farm Payrolls (referred to as NFP) declined for the 25th time in the past 26th months, the world’s largest economy shed a smaller-than-expected 36,000 jobs throughout February – to a seasonally adjusted 129.5 million. For over the past year, this vital economic indicator has consistently showed a drop in the number of employed Americans. While last month analysts predicted that the NFP would re-enter positive territory and the number of employed Americans would increase by 10K, the Non-Farm Payrolls continued to fall throughout January by 20K.

Economists had predicted that the NFP for February would fall by an additional 56,000, pushing the unemployment rate up by 0.1% to 9.8%. However, Friday’s NFP showed that U.S employers cut a smaller than expected 36,000 jobs throughout February, leaving the unemployment rate steady at 9.7% – bolstering views that the labor market is on the brink of a full economic recovery.

The dollar posted its biggest five-day gain versus the Japanese Yen in two weeks, as risk appetite returned to the market following the better than expected NFP. Last week the greenback rose 1.5% to 90.28 Yen, from 88.97 on February 26th. Following the announcement of the NFP, the USD gained as much as 1.76% against the yen, the biggest intra-day move since December 11th of last year. The volatile pair closed at 90.265, up 1.3% from the day’s open.

The Canadian dollar posted its biggest weekly gain in two months versus the greenback as the improvement in its largest trading partner’s outlook could provide a boost for Canada’s economy. The USD/CAD pair fell 0.19% on Friday, as the Loonie rose to a six-week high of 0.972USD. Later today (1315GMT) will publish the number of Housing Starts for February – the number of new residential buildings on which construction was begun during the previous month. Economists expect 190,000 starts, annualized basis, up from 185,600 the previous month.

The euro climbed against the yen and the dollar for a second day as expectations increased that Greece will receive financial assistance, boosting demand for higher-yielding assets. Following yesterday’s meeting between French President Nicolas Sarkozy and Greek Prime Minister, George Papandreou, Sarkozy announced that “If it were necessary, the states of the euro zone would fulfill their commitments.” Throughout his speech he continually re-iterated that there can be no doubt in this regard and that “While Greece doesn’t need assistance right now, he stated that “we have measures, we are ready, we are determined”. The 16-nation single currency appreciated against 11 of its 16 major counterparts, as Sarkozy’s comments are among some of the strongest by an EU leader to signal that the bloc would bail out Greece, in a desperate attempt to try to warn investors off making further bets against the euro and Greek bonds.Tomorrow (March 9th), the Greek Prime Minister, George Papandreou will meet U.S. President Barack Obama in Washington.

This morning the single European currency managed to regain all of last week’s heavy losses against its American counterpart. The EUR/USD rose as high as $1.36958 this morning, up 1.23% from last week’s close. The yen dropped as Asian shares extended a global stock rally, curbing demand for Japan’s currency as a refuge. The Yen fell 0.74% against the Euro as the EUR/JPY jumped to 123.891 this morning, following last week’s closing price of 122.993.

Last Friday, following news that the Greek parliament had passed its austerity package, the Euro rose high as $1.3613 against the U.S Dollar. Following her meeting with the Greek Prime Minister in Berlin last Friday, German Chancellor Angela Merkel announced that Greece hadn’t requested financial support to deal with its debt crisis. The German chancellor stated that she is optimistic that Greece will not need aid from other Euro-Zone members. However, despite her hopeful comments, the Euro still headed for a weekly loss against the U.S Dollar. The pair closed at $1.35291, down 0.36% from the day’s opening price and down 0.658% from the week’s open – making last week the currency’s sixth weekly loss in the past seven weeks.

This morning the (1100GMT), Germany will release its monthly Industrial Production for January – a leading economic indicator that reflects the change in the total inflation-adjusted value of output produced by manufacturers, mines and utilities. In December, Europe’s largest economy saw an unexpected drop of 2.6%. Analysts predict that Germany will see a renewed rise of 1.1% in its industrial production for January.

Last Friday, the U.K Bureau of National Statistics announced producer prices rose in February from a year earlier by the most since December 2008 as higher costs from gasoline to food fed inflation. The increase for Britain’s PPI Input fell in line with market expectations of a 0.1% from January, marking a 12th month rise. The report illustrates that higher commodity prices are sustaining inflation, which touched a 14-month high in January, above the government’s 3% ceiling. The Pound, little changed after this report, appreciated 0.74% against the greenback on Friday. The GBP/USD at 1.51364, up from Friday’s open of 1.50253. This morning, the British currency has reached a high of $1.51931, up 2.23% from last Tuesday, when the Pound struck a 10 month low.

Written by Finexo.com