Friday June 4, 2004 - 14:39:08 GMT
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Daily Market Commentary and Analysis (4 June 2004)
The euro was extremely volatile vis-à-vis the U.S. dollar today following the release of the May U.S. non-farm payrolls report. It was learned that an estimated 248,000 new jobs were created with the unemployment rate coming in at 5.6%. Also, average hourly earnings were up +0.3% and there were impressive upward revisions to April’s and March’s non-farm payroll levels that saw new gains of +346,000 and +353,000, respectively. This means approximately 947,000 jobs have been created in the U.S. economy in the previous three months. The May data was right around many consensus forecasts and the euro reacted by spiking lower to test technical support around the $1.2140 level before skyrocketing to the $1.2275 level. The rate settled around the $1.2225 level after the initial volatility subsided. Stops were hit earlier below the $1.2190 level and stops were later hit above the $1.2250 level during the spike higher. The big question is how today’s data change the complexion of the FOMC meeting on 29-30 June. These data probably cement a 25bps monetary tightening on 30 June, especially in light of recent inflation developments that are seemingly being passed through to the “second round.” The last remaining major item on today’s agenda is a speech from FOMC’s Kohn about inflation. Kohn may very well relay the Fed’s concerns with recent inflation and cost measures. Data released in the eurozone today saw EMU-12 April retail sales increase +1.3% m/m and +1.0% y/y while April manufacturing orders climbed +2.5% m/m. ECB’s Quaden today said the ECB’s policy will remain “neutral” in upcoming months and suggested the economic pick-up could be modestly stronger-than-expected. Traders will pay close attention to the forthcoming G8 summit in Sea Island, Georgia.
The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥112.00 figure after the release of the May non-farm payrolls data. Liquidity was very thin ahead of the non-farm payrolls data with the pair supported around the ¥110.70 level and offered around the ¥111.35 level. Traders lifted the pair to the ¥112.00 figure after the data’s release but then pushed it lower to the ¥110.30 level during a very wild swing. Finance minister Tanigaki said he welcomes OPEC’s decision to boost output and said high prices are “not a major shock to Japan’s economy.” MoF’s Mizoguchi reiterated that discussions about FX are unlikely at the upcoming G7 summit in Sea Island. Data released in Japan today saw the April coincident indicator index at 44.4 with the leading indicator at 66.7 while household spending increased 4.6% y/y. Crude oil was seen around $38.80 level shortly after the non-farm payrolls data were released. The Nikkei 225 stock index rose 0.92% today to close at ¥11,128.05. The euro gained ground vis-à-vis the yen today as the single currency tested offers around the ¥136.15 level after finding bids around the ¥135.25 level. Euro offers are cited around the ¥136.00 figure with additional selling pressure around the ¥136.30/ 50 levels and stops above that area. Euro bids are seen around the ¥135.30/ 00 levels with stops below that area. Additional euro bids are cited around the ¥134.80 level. In Chinese news, Bank of Korea Governor Seung Park said he “does not expect to see a hard landing in China’s economy short term.”
The British pound was volatile vis-à-vis the U.S. dollar today after the release of the U.S. May non-farm payrolls report that saw cable test bids around the US$ 1.8320 level before spiking to the $1.8450 level. Sterling eventually settled back around the $1.8400 figure after the dust settled. Data released in the U.K. today saw the May NTC permanent job placements index fall for the second consecutive month while the U.K. John Lewis Partnership sales index was up sharply. On the political front, PM Blair reiterated that he is planning to retain his premiership. Cable bids are cited around the $1.8280 level and options traders cite a large maturity around the $1.8500 figure at 1400 GMT. The euro gained ground vis-à-vis the British pound today as the single currency tested offers around the £0.6655 level before spiking lower to the £0.6620 level after the release of the May non-farm payrolls report. Euro bids are cited around £0.6615 level and with offers around the £0.6670/90 levels.
The Swiss franc was also volatile vis-à-vis the U.S. dollar today as the greenback spiked to the CHF 1.2565 level after the release of May non-farm payrolls before receding to the CHF 1.2435 level. After the volatility receded, traders saw the pair off more than 50 pips. SNB’s Roth spike today and said the euro has been a “very positive development” on the Swiss franc and reiterated the Swiss National Bank will remains independent from the European Central Bank. Roth did not allude to current monetary policy but there remains substantial speculation that the central bank will raise interest rates this month. SNB’s quarterly policy review will be released on 17 June. SNB added one-week liquidity at 0.11% today, unchanged from recent repo pact levels. The euro shot lower vis-à-vis the Swiss franc today as the single currency tested bids around the CHF 1.5240 level.
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