Friday June 3, 2005 - 11:33:19 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - European EditionKey Points
• Italian minister shoots down EUR-USD in early
• US employment report the main feature today…
• …although UK/Eurozone service sector PMIs and the US non-manufacturing ISM are equally significant for respective policy expectations.
Italian welfare minister Roberto Maroni, also a member of the euro-sceptic Northern League, said that Italy should debate whether to leave the EUR. The comment comes at a bad time for the EUR and while he is likely to be dismissed as being outside the mainstream as far as the Italian government is concerned (expect some EUR support from other Italian officials this morning), this chipping away at the EUR stone will not aid EUR confidence in coming weeks.
More important today will be the tone of the US data. It is the relatively superior performance of US indicators that has been the main foundation for USD strength in recent weeks. Today’s US data will go some way in demonstrating whether this continues in the short-term. Key Eurozone and UK releases are also due (see below) and while data weakness in these countries is already well appreciated, they will hold significance for MPC/ECB policy expectations.
EUR-USD had just moved above 1.2300 before the Maroni comments were reported and there is every chance of it recovering back up to that level and beyond this morning. Much will depend upon the tone of the Eurozone PMIs. Given the scale of the move this week, the natural tendency is for EURUSD to initially correct higher (1.2450-1.2500), although this may also require the complicity of the data. Very weak numbers in the Eurozone and more strength in the US would support a fresh move towards the week’s low (1.2160). The range of potential price outcomes is dangerously wide today.
Eurozone/UK – PMI services data in the UK and Eurozone could be critical for the way in which policy expectations evolve in the short-term. Manufacturing PMIs for both are currently below the key 50 level and the service sector measures will need to continue their recent resilience if rate cut calls on the ECB and MPC are not to mount further.
US – last month’s employment report saw the 3-mth moving average for the m/m change moving to its highest level (+240k) since May last year. Indeed, it is the first time this average has been back above 200k since Apr-Jun 2004. As one can see from the chart, 200k-plus numbers are typically associated with periods of labour market strength, so it will be interesting to see whether this latest development proves to be more durable than that seen during 2004. The non-manufacturing ISM is also due today after having maintained strength in recent months despite the downturn seen in the manufacturing ISM. As is the case with the UK and the Eurozone, the resilience or otherwise of this measure will have implications for policy thinking going forward.
Data/event EDT Consensus*
IT PMI services (May) 08.45 48.6
FR PMI services (May) 08.50 57.1
DE PMI services (May) 08.55 51.0
EU PMI services (May) 09.00 52.5
GB PMI services (May) 09.30 56.0
EU Retail sales (Apr) m/m 10.00 +0.2%
US Non-farm payrolls (May) 13.30 +175k
US Unemployment rate (May) 13.30 5.2%
US Average workweek (May) 13.30 33.8
US Hourly earnings (May) m/m 13.30 +0.2%
US ISM non-manu (May) 15.00 60.0
Latest data Actual Consensus*
AU House price index (Q1) q/q +0.2% 0.0%
* Consensus unless stated
2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005
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