Daily Forex Commentary

EURO

The euro gained marginal ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5480 level and was supported around the $1.5420 level. Technically, today’s intraday high and low were right around the 61.8% and 76.4% retracements of the move from $1.5285 to $1.5815. Data released in the U.S. today saw ADP May private sector jobs growth of 40,000, far above the 30,000 jobs loss expected last month. Some economists are upwardly revising their estimates for the Friday release of May non-farm payrolls growth. A strong print on Friday can lead to additional gains for the U.S. dollar because it will add to the view that the Federal Open Market Committee likely has ended its rate-tightening cycle. Other data released today saw Q1 non-farm business productivity upwardly revised to an annualized 2.6% growth rate from the initial 2.2% estimate and up 3.3% y/y. Also, unit labour costs growth was unrevised at 2.2% q/q and up 0.7% y/y, the smallest year-on-year change since Q2 2004. Other data released today saw Challenge May jobs layoffs rise 15% m/m. Additionally, the May ISM services index printed at 51.7. There is widespread speculation that U.S. investment banking giant Lehman Brothers is in financial trouble and any such confirmation could impact the greenback. In eurozone news, European Central Bank President Trichet reported “The challenge lying ahead is preventing the system from feeding on itself through a spiraling process of leveraging.” The European Central Bank is expected to keep its main refinancing rate target at 4.00% tomorrow. Data released in the eurozone today saw EMU-15 April retail sales off 0.6% m/m and 2.9% y/y. Also, EMU-15 May services PMI was unrevised at 50.6 from 52.0 in April while German May final May services PMI rallied to 53.8. Euro bids are cited around the $1.5230 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥104.55 level and was capped around the ¥105.35 level. Data released in Japan overnight saw non-financial companies’ combined capital investment fall 4.9% y/y in Q1, an improvement from Q4’s -7.7% y/y rate. These data are important because they suggest that real GDP may be upwardly revised for the January – March period. Traders continue to monitor developments at Bank of Japan where nominee Ikeo faces a possibly contentious process to join the central bank’s Policy Board. The Nikkei 225 stock index gained 1.59% to close at ¥14,435.57. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥161.75 level and was capped around the ¥162.60 level. The British pound came off vis-à-vis the yen as sterling tested bids around the ¥204.50 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥101.05 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9390 in the over-the-counter market, up from CNY 6.9250.

STERLING

The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9525 level and was capped around the $1.9635 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from $2.0025 to $1.9360. Traders continue to remain concerned with the U.K. banking sector following this week’s announcement of problems from building society Bradford and Bingley. Data released in the U.K. today saw May Nationwide consumer confidence fall to its weakest level since May 2004 while services PMI reached its lowest level in more than five years at 49.8. Also, BRC May shop price growth accelerated to an annualized 1.8% level. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7920 level and was supported around the ₤0.7865 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0360 level and was capped around the CHF 1.0445 level. U.S. dollar offers are cited around the CHF 1.0760 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6035 and CHF 2.0275 levels, respectively.

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