17:00 GMT (Global-View.com) Sep 3, 2010 The August U.S. non-farm payroll data surprised the markets with a decline in headline number of -54K when a fall of -100K had been expected. The focus of most traders was on private sector jobs, which grew by 67K on the month. Previous data were also revised higher. The data were not strong but suggested that the economy is not falling off a cliff. Any euphoria generated by the data was deflated by a much poorer than expected ISM Services PMI shortly thereafter, which fell to 51.5, which is only barely above the 50 expansion-contraction line. Equity markets have reacted generally positively to the data. Although where the economy stands right now is hard to determine.
In Japan, more headlines have appeared on the JPY. The latest set of items on the wire suggested that Tokyo realizes that it is not going to get help from the G7 in containing its currency. There has been chatter the BOJ is serious about capping the USDJPY pair if the 80.00 level is approached. You can only take them seriously when they intervene, if their intervention is not sterilized. The U.K. Services PMI unexpectedly fell to 51.3 vs. 52.9 expected.
UPCOMING DATA HIGHLIGHTS: No major data are expected from the Far East or Europe on Monday. Both the U.S. and Canadawill be closed Monday for holidays.
The EURUSD is up on the day and the GBPUSD is better. The EURGBP cross is stable. Traders are still watching the European sovereign debt situation.
In the GBP, markets are keeping an eye on the U.K. economy.
The USDCHF is higher and EURCHF is up. The SNB strong stand in supporting the EUR against the CHF has waned after massive FX losses. Flows out of the EUR into the CHF remain an issue for the SNB.
The USDJPY is up and the EURJPY cross is higher. While Japanese public finances are a mess, analysts point out that most JGBs are owned by Japanese, so Japan is not dependent on foreign investment. The government has been pressed the BOJ to promote growth and favors a lower exchange rate.
Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade continues to be turned on and off almost daily. As for the commodity currencies (CAD, AUD and NZD), they are higher vs. the USD. The Bank of Canada recently has been sending mixed policy signals. A strong CAD eases the pressure on the Bank of Canada to tighten. In Australia, the RBA is unlikely to tighten in September. Election results were inconclusive. The RBNZ is now in a reduced tightening mode. Oil and gold are down. Gold is still favored as a refuge from paper money.
EQUITIES & INTEREST RATES
Equities and Bonds are also risk trades. Far East equities closed higher. European bourses are up. U.S. equities are up. The U.S. 10-yr was last 2.72%, +9 bps.
Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author and co-founder and partner of Global-View.com. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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