Dukascopy Morning Forex Overview – Sept 04 09

Previous session overview

The euro and dollar edged down against the yen Friday as sluggish regional share markets led some short-term players to buy the safe-haven Japanese unit.

But the three major currencies will likely hug narrow bands against each other for the rest of Asian trade as investors bunker down before the U.S. non-farm payrolls report for August due at 1230 GMT.

U.S. employment reports over the past two days have led many players to see a greater risk of a negative surprise in Friday’s report.

The Euro traded above USD1.4300 to touch USD1.4350 before easing after lackluster ECB President Trichet comments post rate meeting. The ECB held at 1.0% but Trichet noted that the recovery will be bumpy and uneven. July retail sales also weighed falling -0.2% vs. 0.1% forecast.

Cable rallied to USD1.6415 in European morning in part due to cross buying in sterling together with the slightly better-than-expected U.K. services PMI (August figure was 54.1 versus 53.9 forecast) but price later retreated in tandem with euro on profit taking after Trichet’s comments. However, cross-buying on sterling gave support to the currency and price remained relatively firm.

The Australian dollar ended stronger Friday, supported by continued improvement in global equities and commodities prices but still in recent ranges ahead of U.S. employment numbers.

Market expectation

Major currency pairs are little changed in continuing the recent cautious patterns in tight ranges.

The specter of the August U.S. employment report, scheduled for release Friday, may be adding to the cautious mood as investors reassess the timeline for global recovery.

For EURUSD offers seen placed to USD1.4280 (38.2% USD1.4350/1.4235-earlier high at USD1.4263 was 23.6%), a break to open a move toward USD1.4300/10. Through here and rate can edge on toward USD1.4320/25 ahead of USD1.4350. Support remains in place back at USD1.4235/30, a break below to allow for a deeper move toward USD1.4200, with bid interest noted from here and extending to USD1.4170. Stops noted on a break below.

The U.S. Department of Labor releases August non-farm payrolls data later Friday with economists expecting 233,000 U.S. jobs lost in August from 247,000 lost in July while the unemployment rate is expected to have risen to 9.5% from 9.4%.

While currency and bond reaction is expected on the U.S. employment release, thin liquidity leading into the U.S. Labor Day long weekend may limit price action.

Any worse-than-expected outcome could benefit the yen, by prompting investors worried about a slow global economic recovery to buy the unit, traders said.

European stocks are expected to open higher Friday, benefiting from Thursday’s positive finish on Wall Street and a mixed session in Asia overnight that saw Chinese stocks higher on gains in gold and base metal prices.

Source: Dukascopy