Greenback at Important Resistance
May 5, 2008
Greenback at Important Resistance
- The dollar rose against most major currencies on Friday after April US non-farm payrolls fell less than expected and the unemployment rate unexpectedly declined. Sterling fell following new signs of weakness in the UK housing market. The yen declined as risk appetite increased demand for carry trades. Today’s US equity gains supported the dollar but pressured the yen. The dollar block currencies gained modestly on strength in the commodity market. The Australian dollar was supported by higher-than-expected Australian retail sales. After two weeks of gains, the dollar is now at important resistance against most key currencies. It is possible the dollar’s rally will continue; however, the market may need to consolidate gains. The Reserve Bank of Australia is expected to keep its cash target rate unchanged at 7.25% next week.
- The EUR/USD made a new 5-week low on better-than-expected US data and weak European data; however, unable to penetrate the important 1.54-area support. The RSI indicator shows the pair is getting oversold likely requiring more time before breaking support. A break of the 1.54 support would be an important development, possibly setting a test of the support from the uptrend at 1.49.
Financial and Economic News and Comments
US & Canada
- US non-farm payrolls posted a less-than-forecast 20,000 decline in April following March’s revised 81,000 and February’s revised 83,000 drops, the Labor Department said. Private (non-government) payrolls fell 29,000 in April. The weakest sectors were construction (down 61,000) and manufacturing (down 46,000). Solid sectors included education and health care (up 52,000), professional/business services (up 39,000), and leisure/hospitality (up 18,000). The decline in April non-farm payrolls is a fourth straight monthly fall but at a much slower pace than previous months, suggesting the US job market and the economy may be stabilizing.
- The US unemployment rate unexpectedly declined to 5.0% in April, compared with 5.1% in March and 4.8% a year earlier, the Labor Department said. Both total employment, at 146.3 million, and the employmentpopulation ratio, at 62.7%, were little changed in April. Over the month, the labor force participation rate held at 66.0%, the same rate a year earlier. Average hourly earnings edged up $0.01, or 0.1%, to $17.88, following gains of $0.06 in February and in March. Over the past 12 months, average hourly earnings rose 3.4%. The average workweek fell 0.1 hour to 33.7 hours.
- US factory orders rose a much more-than-expected 1.4% in March, following a revised 0.9% decline in February, the Commerce Department said. Excluding orders for transportation equipment, demand rose 2.2%, the most in a year.
- President George W. Bush, speaking in St. Louis, said the decline in job creation signals the US economy is “not as robust as any of us would like it.” He said the Q1 2008 GDP growth rate of 0.6% (same as the Q4 2007 rate) “is not good enough for America.”
- The Federal Reserve, seeking to prevent a deeper US economic slowdown, expanded its cash-loan auctions for banks by 50% to $75 billion to ease liquidity pressures.
- The US ISM manufacturing index was at 48.6 in April, unchanged from March and indicative of a slight contraction in factory activity, data from the Institute for Supply Management showed.
Europe
- European manufacturing growth slowed for a third month in April. Royal Bank of Scotland Group Plc’s manufacturing index declined to 50.7 in April from 52 in March.
- Germany’s manufacturing PMI fell to 53.6 in April from 55.1 in March, according to Royal Bank of Scotland Group Plc and NTC Economics Ltd.
- Germany’s retail sales unexpectedly declined in March for a second month on accelerating inflation. Sales declined 0.1% m/m in March after falling 0.7% m/m in February, the Federal Statistics Office said.
- The average cost of a UK home declined 0.9% y/y to £189,027 ($373,082) in the three months through April, the first annual decline since February 1996, HBOS Plc said. An index of building activity fell to 46.1 in April from 47.2 in March, the Chartered Institute of Purchasing and Supply reported. The declines show the UK’s property slump is deepening as lenders tighten credit standards.
Asia-Pacific
- Japan’s Fukushiro Nukaga, China’s Xie Xuren, South Korea’s Kang Man Soo and Southeast Asian ministers are meeting at the Asian Development Bank’s annual gathering in Madrid this weekend. Rising food and commodity prices that are stoking inflation will likely dominate the ADB meeting agenda.
- China’s CLSA PMI rose to 55.4 in April from 54.4 in March, the highest level since the survey began in April 2004, CLSA Asia-Pacific Markets reported.
- Australian retail sales rose a more-than-expected 0.5% m/m in March driven by surging food prices, after declining 0.1% m/m in February, the Bureau of Statistics said.
FX Strategy Update
