Monday November 7, 2005 - 11:50:28 GMT
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INVESTICA Ltd - www.investica.co.uk
Euro licks wounds
The Euro strengthened after the US employment report on Friday as there was a weaker than expected headline increase in payrolls. The Euro was, however, unable to push back above 1.20 and this failure encouraged fresh Euro selling. This quickly escalated into aggressive stop-loss selling as important resistance levels were broken The Euro was still on the defensive on Monday, although it recovered from a brief dip below the 1.18 level. Dollar confidence should remain firm for now, but it would be very dangerous to ignore the underlying US economic risks.
The headline US payroll increase was weaker than expected at 56,000 for October while there was net downward revision to the previous two month's figures of 36,000. The unemployment rate fell to 5.0% from 5.1% as the labour force shrank. The bureau stated that underlying growth was below recent trends with the employment gain inflated by additional construction workers following the hurricanes. The report will raise some concern over employment and growth trends, although the underlying trend is still firm at this stage. The evidence suggests that companies are looking to work existing workers harder rather than take on additional workers.
The wages data was stronger than expected with 0.5% increase for October, the highest monthly increase for over two years, and this will maintain fears that there are elevated wage and price inflation risks from the employment sector, although the annual increase was still under control. The overall wage inflation evidence remains mixed with the quarterly figures favourable when released earlier last week as there was a drop in unit labour costs. The dollar has discounted a further series of Fed interest rate increases and the currency will, therefore, be vulnerable on any change in these expectations.
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