Friday January 5, 2007 - 11:22:19 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar braced for payroll volatility
The most likely outcome is that the dollar will face tough resistance close to the 1.3050 level, although an employment increase above 150,000 would be likely to trigger a move to 1.2970 on accelerated position adjustment.
The dollar continued to edge stronger against the Euro on Wednesday with gains to 1.3080 in US trading and the dollar held firm in early Europe on Friday as cross-trading dominated markets while trading conditions were choppy.
The US ISM index for the services sector fell to 57.1 in December from 58.9 in November which was slightly below market expectations. The prices and employment components, however, were stronger over the month which will offer some support. The data, overall, continued to reduce fears over a sharp slowdown in the economy and weaker oil prices also boosted growth expectations.
The employment report will be very important on Friday and there is greater than expected uncertainty following the weak ADP payroll report on Wednesday and weekly rise in jobless claims. An erratic figure is certainly a risk given the potential seasonal adjustment problems and a negative headline payroll figure would cause considerable dollar damage. Market expectations over the figure have, however, softened over the past 24 hours with unofficial estimates now nearer 80,000 and an employment increase close to or above 100,000 would now offer some dollar relief. A high reading on hourly wage costs would also underpin the US currency as wage inflation would make it much more difficult for the Federal Reserve to cut interest rates.
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