Friday June 6, 2008 - 10:36:06 GMT
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Forex Research - Euro Consolidates Gains - Will NFPs Push It Higher?
A typically quiet pre-NFP night, as EURUSD spent most of its time consolidating around the 1.5600 figure and currency traders absorbed the impact of yesterdayâ€™s surprisingly hawkish press conference by ECB chief Jean Claude Trichet.
â€¢ Japanese Yen: holds 106.00 as Nikkei follows on Dowâ€™s gains
â€¢ Euro: Consolidates at 1.5600 ahead of NFP
â€¢ Pound: Quiet as calendar barren
â€¢ Canadian Dollar: Employment on tap
â€¢ US Dollar: NFP is key
A typically quiet pre-NFP night, as EURUSD spent most of its time consolidating around the 1.5600 figure and currency traders absorbed the impact of yesterdayâ€™s surprisingly hawkish press conference by ECB chief Jean Claude Trichet. Instead of merely reaffirming the bankâ€™s neutral position, Mr. Trichet noted that the committee actually considered raising rates in the face of accelerated inflation in the region. Furthermore, he distanced the ECB completely from any simulative policy action, stating that the central banks mandate was to focus strictly on price stability.
Mr. Trichetâ€™s uber hawkishness was so uncompromising that it immediately lifted the EURUSD for 200 points reversing all of the units losses suffered on Tuesday following Chairman Bernankeâ€™s pro-dollar speech. The FX market now finds itself observing a clash of the central banks, but in this battle Mr. Trichet clearly has the upper hand with EZ fundamentals still outpacing the lackluster performance of the US economy and EZ rates 200bp higher than those of the US.
To that end, todayâ€™s Non Farm payrolls will be critical in providing support â€“ if any â€“ to the greenback. Mr. Bernankeâ€™s promise to keep US rates steady at 2% can only be sustained if USD labor market conditions do not deteriorate drastically. In our look at the NFP preview we note that 8 out 10 indicators that we follow signal a weaker number. However, the fact that the weekly jobless claims have not risen materially this month suggest to us that the payroll results may not be as dire as the bears expect. Nevertheless, the number is notoriously difficult to handicap and if it does print -100K or worse the prospects of further gains in the EURUSD are quiet strong especially with the new expectation of possible rate hikes out of the ECB.
In short, yesterdayâ€™s surprisingly hawkish stance by Mr. Trichet has skewed sentiment in euroâ€™s favor once again. Only a relatively strong NFP number which would allay any fears of further easing by the Fed, could stop the euroâ€™ s upward momentum for now.
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