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The US October labor report showed an explosive growth of 337,000 jobs, while the unemployment rate edged up to 5.5% from at 5.4%. Average hourly earnings rose 0.3% from a revised 0.1%. Both August and September payrolls were revised upwards, with the former revised to 198,000 from 128,000 and the latter revised to 139,000 from 96,000.
Our forecasts for payrolls of as much as 300K, compared to private economists’ consensus forecasts of 170-180K was based on the following rationale: “We expect the payrolls figure to come in at a stronger 290K-300K due to a continued decline in the weekly jobless claim, and an improvement in the regional employment sub-indices from the manufacturing and services surveys. Also, the fact that the reporting period for jobless and hiring entails over a 5-week month instead of a 4-week month, we see more rooms for hiring”.
Hurricanes trigger highest rise in construction in 4 years
Construction jobs increased by 71,000 in October as reconstruction efforts surged in hurricane-affected areas of the Southeast. This was the highest rise since March 2000. Interestingly, bear in mind that the Bureau of Labor Statistics determined that neither of Hurricane Charley, Ivan nor Jeanne had a material impact on jobs in September. Considering the surge in October construction jobs being a result of temporary damage, we could well see these jobs revert to their 19K monthly average form January to September.
Services jobs behind the bulk of the rise
Service jobs were the biggest creator of employment in October, producing a 272K increase, an increase not seen since April. The increase in services jobs reflects the advance in the services ISM employment index, which rose to 55.8 in October, posting its third monthly increase. The lion’s share of services jobs emerged from education (+62K from +19K) retail (+21K from –5K), professional services (+97K from +44K). Thus, on the bullish side, even if construction jobs do revert back to their 19K monthly average shown in Jan-Sep, the hope lies in services to make up for the slack.
What about manufacturing?
The stellar payrolls report overlooked the decline in manufacturing, which lost 5K jobs in October after a 14K loss in September. This was the first back-to-back monthly loss since December-January. The decline in October manufacturing jobs came in with the October employment index of the ISM manufacturing survey, which fell to 54.8 from September’s 58.1, its lowest level of the year.
Fed Impact
The strong jobs report makes a 25-bp rate hike to 2.00% next week a certainty, while maintaining chances of a 50-60% change of a similar tightening in December. From the continuously benign inflation numbers, It has become all too evident that the Fed’s tightening is aimed at normalizing monetary policy i.e. lifting the real fed funds rate interest above zero. A 25-bp rate hike next week would lift the real rate to 0 % when using annual core CPI, but lifts it to 0.5% when using the core PCE of 1.5%. At any rate, we reiterate that despite this month’s rate hike, we see little dollar upside since such a tightening would be the last of the current tightening cycle. The current tightening cycle (which began in June) is aimed at normalizing interest rates, i.e. bringing up the real Fed. W expect the fed to pause for an indefinite period before the second chapter of its tightening, i.e. pushing fed funds to neutral territory of 3.5-3.75%
Dollar damaged as focus remains on US structural deficiencies
Today’s dollar slide to all time lows euro ($1.2950) and fresh 9-year highs lows in trade-weighed terms at 84.00 reflects a clear loss of trader confidence in the US currency. Traders are shifting focus from the US cyclical superiority of higher growth rates to its structural deficiencies, namely, a budget deficit topping $400 billion in the first 9 months of the year and a trade deficit at $393 billion in the first 8 months of the year.
Aside from lower interest rates, the European Central Bank is more reluctant in intervening than it was in February in order to gain from the anti-inflationary benefits of the euro’s appreciation. This importance is underlined by the ECB’s mandate to keep inflation near 2.0%. In February, the ECB ‘s main occupation was a contracting economy, which could have been exacerbated by a soaring euro. Today, inflation is an integral part of Eurozone risks, therefore, the euro may be required to surpass the $1.30 level in order to contain these inflationary pressures.
At 7:00 AM Canada October Change in Employment (exp 29k, prev 43.2k) Canada October Unemployment Rate (exp 7.1%, prev 7.1%) At 8:30 US October Average Hourly Earnings (exp 0.3%, prev 0.2%) US October Non-Farm Employment Payrolls (exp 175k, prev 96k) US October Unemployment Rate (exp 5.4%, prev 5.4%)
The greenback remains mired near lows against the majors, extending sentiment from recent sessions for a weaker dollar. Markets will now turn to the October labor report, due at 8:30 AM and are expected to show a rise of 170-180K from September’s 96K, with the unemployment rate steady at 5.4% and average hurly earnings up 0.3%. We expect the payrolls figure to come in at a stronger 290K-300K due to a continued decline in the weekly jobless claim, and an improvement in the regional employment sub-indices from the manufacturing and services surveys. Also, the fact that the reporting period for jobless and hiring entails over a 5-week month instead of a 4-week month, we see more rooms for hiring. We think that only a rise of at least 200K would be dollar positive, while a rise of at least 220K could lower the euro towards the 1.2790s assuming we see euro declines ensuing in mid-morning European trade. A figure within consensus forecasts of 170-180K should extend the dollar’s sell-off.
Cable Whipsaws on Data
Cable whipsawed overnight following the release of much weaker than expected UK economic data. September industrial production fell sharply, losing 0.4% m/m and 0.9% y/y, versus forecasts for a 0.3% monthly rise and an unchanged annual figure. Manufacturing output rose by only 0.1%, undershooting calls for a 0.3% rise. Cable sold-off sharply in a knee-jerk reaction to the data, briefly breaking through 1.84 in London trading.
Cable trades at 1.8430, with gains to face resistance at 1.8460, followed by 1.85 and 1.8540. Additional ceilings are seen at 1.8580, followed by 1.86 and 1.8630. Losses will target floors at 1.84, followed by 1.8370 and 1.8340. Subsequent floors are seen at 1.83, backed by 1.8260 and 1.8230.
Euro Sets Record Highs in Sights
Eurozone September retail sales edged up to 0.1%, reversing the 0.8% drop from August. Currency markets displayed a muted reaction to the data, with the euro consolidating above the 1.2850-mark.
Resistance is EURUSD starts at 1.2880, backed by 1.29 and key resistance at 1.2925. A breach above will eye 1.2960 and 1.30. Support starts at 1.2840, backed by 1.28 and 1.2750. Subsequent floors are eyed at 1.27, followed by 1.2670 and 1.2630.
USDJPY
Dollar/yen traded narrowly above the 106-mark. With resistance seen at 106.50, followed by 107 and 107.40. A move higher will target 107.80, backed by 108 and 108.30. Support starts at 106, followed by 105.70 and 105.20. Subsequent floors are seen at 105, backed by 104.65 and 104.20.
AUDUSD Near Highs
AUDUSD punched higher overnight, rising to 0.7573. Resistance is seen at 0.76 and 0.7645. Additional gains will target 0.7690, followed by 0.7750 and 0.78. Losses find support starting at 0.7530, followed by 0.75 and 0.7460. A move lower will target 0.7420, backed by 0.74 and 0.7370.
USDCHF
The Swiss franc traded at an 8-year high against the dollar in London at 1.1860. Further losses will target floors at 1.1840, backed by 1.18 and 1.1730. Subsequent floors are seen at 1.1680, followed by 1.1620 and 1.1575. Resistance is seen at 1.1950, backed by 1.20 and 1.2080. A move higher will target 1.2150, followed by 1.2230 and 1.23.
Traders were hardly distracted from their dollar-selling ways on the reasoning that the status quo meant a continuation of a weak dollar policy, swelling budget and trade deficits and geopolitical uncertainty/tensions. The dollar’s decline occurred despite the $2 fall in crude oil prices to $48.70s per barrel. Emerging signs of concern from the European Central Bank on inflation were instrumental in the euro regarding on inflation were instrumental in pushing up the euro to a fresh 9-month high at $1.2896. Bond yields eased to 4.08% from yesterday’s closing figure of 4.09%.
Conflicting reports on the health condition of Palestinian Authority Chairman Yasser Arafat swirled around the markets, with initial reports of his death later to be followed by remarks from his French Doctor that he was still alive. Oil traders attributed the $2.00 decline in the price of crude futures to $48.80 to the Arafat reports on the ground that his successor would improve chances of peace in the Middle East.
US jobless claims fell 19K to 332K last week, defying expectations of a 9-10K decline as fewer claims were reported from the Hurricane-ridden State of Florida. The 4-week average fell by 1.5K to 342K, reaching the lowest level the week of Sep 18.
All eyes on October payrolls
Markets turn to tomorrow’s October labor report expected to show a rise of 170-180K from September’s 96K, with the unemployment rate steady at 5.4% and average hurly earnings up 0.3%. We expect the payrolls figure to come in at a stronger 290K-300K due to a continued decline in the weekly jobless claim, and an improvement in the regional employment sub-indices from the manufacturing and services surveys. Also, the fact that the reporting period for jobless and hiring entails over a 5-week month instead of a 4-week month, we see more rooms for hiring. We think that only a rise of at least 200K would be dollar positive, while a rise of at least 220K could lower the euro towards the 1.2790s assuming we see euro declines ensuing in mid-morning European trade. A figure within consensus forecasts of 170-180K should extend the dollar’s sell-off.
The preliminary estimates for Q3 productivity saw showed a higher than expected 1.9% annual rise from a 3.9% in Q2. Output rose 4.1% from 3.9 & while unit labor costs rose 1.6%, the fastest rise since Q1 2003.
Euro tests $1.29 amid Trichet’s inflation worries
The euro climbed its way near record highs ECB after remarks from Bank president Trichet who said “inflation to remain significantly above 2% in coming months” blaming oil prices as having a “direct impact on inflation”. Trichet said the Bank held rates unchanged today as it remained on course for price stability and continues to see inflation below 2% in the medium term. As hawkish as the comments might have sounded, Trichet did say that the “downward risks for euro zone growth are increasing” but there was no risk of stagnation and growth was near potential. Although Mr. Trichet is seen is see as a more growth-oriented than his predecessor Duisenberg, we could see a rate hike as early as December in the event that prices remain regain $50 per barrel.
Regarding the euro’s climb, Trichet stuck to the script of the G7, but also added that he welcomed the US’ “strong dollar policy”. We reiterate that the ECB is more reluctant in intervening than it was in February so as to gain from the anti-inflationary benefits of currency appreciation.
We could see the euro fall towards the $1.2790s in the event that the US employment payrolls climb above the 220-30 K level. A figure within expectations of 160-170K or less could likely end up into renewed dollar erosion.
Testing the $1.2880s, EUREUSD sees resistance at $1.2920 and $1.2950. Key pressure stands at $1.2975. Support lifts up to 1.2830-35, followed by 1.2790 and 1.2740-50..
USDJPY to require more jawboning
The dollar posted further declines to hit a fresh 7 ½ month lows despite jawboning from Japan’s Vice Fin Min Hosokawa indicating decisive action to be taken in case of sudden FX moves. The 105.75 level remains the key support showing the 61.8% retracement of the rise from the 79.79 low of April 1995 to the 147.62 high of August 1998. A breach below 105.75 paves the way for 105.20. A strong US payrolls tomorrow of more than 200K could lift USDJPY to 106.50 and 106.70.
GBPUSD decouples from EURUSD
A fresh round of weak housing data in the UK and the decision by the Bank of England to hold rats unchanged intensified sterling’s declines against the euro, sending it to a 10-momth low of 69.93. The falling soaring EURGBP rate was especially boosted by Trichet’s hawkish comments. House prices as measured by the Halifax mortgage lender fell 1.1% last month, adding to the array of softening housing price data.
Cable ended lower, defying its usually positive correlation of the EURUSD rate. After topping at its trend line resistance of $1.85--extending from the $1.9140 high thru the $1.8769 high sterling fell back to the $1.8420s. Support starts at 1.8375, followed by 1.8315—the 50% retracement of the $1.9140-1.7479. Resistance starts $1.8475-80, followed by $1.8515—which is also the 61.8% of the said move. Next targets seen at $1.8550 and 1.8580.
Loonie’s limbs in awaiting of jobs
USDCAD stabilized above the 1.2050 as it awaits for tomorrow’s jobs figures from Canada due the same time as their US counterpart. Employment is seen rising by 29K from 43.2K while the jobless rate unchanged at 4.1%.
Support seen at 1.2060, followed by 1.2030. Upside starts 1.2150 followed by 1.2215-20.
At 8:30 AM US Q3 Productivity – preliminary annual (exp 1.8%, prev 2.5%) US Weekly Jobless Claims (exp 340k, prev 350k) US Q3 Unit Labor Costs – preliminary annual (exp 2.4%, prev 1.8%)
The dollar continued to slump, extending losses in London to a fresh multi-year low against the Swiss franc beneath the 1.19-level and dropping to its lowest level against the euro since February at 1.2850. The greenback has remained under pressure following President Bush’s victory in his re-election campaign, as focus of the currency market has returned to economic fundamentals. Returning to the fore of traders’ psyches is the hefty US twin deficits and the uncertainty of the jobs outlook. The key report this week will be the non-farm payrolls data due out on Friday.
BoE Unchanged, Cable Edges Up
The Bank of England, as widely anticipated, held its monetary policy unchanged at 4.75%. Interestingly, given the weakness in recent UK economic data, there has been speculation that not only will there be no further rate hikes, but possible rate cuts. Earlier in the session, the Halifax UK house price index dropped 1.1% in October, showing additional signs of a slowdown in the UK housing market.
Resistance in cable starts at 1.85, followed by 1.8540 and 1.8580. Additional ceilings are seen at 1.86, followed by 1.8630 and 1.8675. Interim support begins at 1.8460, backed by 1.8415 and 1.8340. Subsequent floors are seen at 1.83, backed by 1.8260 and 1.8230.
Euro Hovers Above 1.27
The ECB is expected to hold interest rates steady when it announces its policy decision shortly. Markets will pay close attention to the subsequent press conference from ECB President Jean Claude Trichet.
Resistance is EURUSD starts at 1.2880, backed by 1.29 and key resistance at 1.2925. A breach above will eye 1.2960 and 1.30. Support starts at 1.2840, backed by 1.28 and 1.2750. Subsequent floors are eyed at 1.27, followed by 1.2670 and 1.2630.
USDJPY Buoyed Above 106
Dollar/yen traded narrowly above the 106-mark. With resistance seen at 106.50, followed by 107 and 107.40. A move higher will target 107.80, backed by 108 and 108.30. Support starts at 106, followed by 105.70 and 105.20. Subsequent floors are seen at 105, backed by 104.65 and 104.20.
AUDUSD Steady Near Highs
AUDUSD punched higher overnight, rising to 0.7573. Resistance is seen at 0.7575, backed by 0.76 and 0.7645. Additional gains will target 0.7690, followed by 0.7750 and 0.78. Losses find support starting at 0.7530, followed by 0.75 and 0.7460. A move lower will target 0.7420, backed by 0.74 and 0.7370.
Swiss Stands Firm at 8-year High
The Swiss franc traded at an 8-year high against the dollar in London at 1.1889. Further losses will target floors at 1.1840, backed by 1.18 and 1.1730. Subsequent floors are seen at 1.1680, followed by 1.1620 and 1.1575. Resistance is seen at 1.1950, backed by 1.20 and 1.2080. A move higher will target 1.2150, followed by 1.2230 and 1.23.
The dollar fell sharply across the board after president Bush defeated Senator Kerry in a closely contested race. Although the results of the swing state of Ohio were not yet finalized, Senator Kerry conceded defeat on the argument that even a victory would have been insufficient in placing him in the White House. The dollar rallied briefly along with bond yields at about 3 am EST on preliminary results showing a Bush lead in Ohio. The dollar’s fall was explained due to the fact that the election was decided without delay or uncertainty, paving the way for market focus on the fundamental disciplines of the US economy.
For more details on the dollar and election, see the latest Article & Idea in forexnews.com
US demand for factory orders fell 0.4% in September after a downwardly revised 0.3% decline in August, showing the first back to back drop since November-December 2002. The report disappointed economists who were expecting a 0.5% rise. The 0.2% rise of consumer durables in September remained unrevised.
The services ISM rose to 59.8 in October from 56.7 in September showing the first rise in 3 months, and remaining in expansion territory (above 50) for 19 th straight months. The employment index rose to 55.8, registering its third monthly rise, while new orders rose 58.3.
Euro soars 1.5 cents above $1.28
The euro surged against the dollar and the yen after uncertainty was removed from the markets when Senator Kerry conceded defeat, allaying worries of an election impasse. Despite the Republicans’ more marker-friendly measures and markets’ preference for the incumbent president, the euro’s rise reflected a stark realization of the dollar’s fundamental deficiencies.
The Eurozone’s services PMI rose to 53.5 last month from 53.3 in September, marking the 16th straight month reading in expansion territory, beating expectations of a 53.3 reading. The improvement fared relative to the decline in the manufacturing PMI released on Monday.
Tomorrow’s ECB rate decision could draw much market scrutiny as to whether officials would weigh on the euro’s rapid rise. Thus, we should if the ECB would continue to remain silent regarding the strength of the euro, which they have downplayed in the intention that it would contain the inflationary risk of rising oil prices.
With EURUSD testing the $1.2820s, the pair sees resistance at 1.2845 and $1.2870. Support starts at 1.2750, followed by 1.27 and 1.2630.
USDJPY back down where its started
The dollar began its descent from its 106.88 session high in mid morning US trade, about 3 hours after the preliminary news showed a Bush victory in the swing state of Ohio. Traders expect the yen to post fresh gains and inevitably draw the attention of the Bank of Japan into a possible yen selling intervention.
Interim USDJPY support seen at 106, followed by 105.75—the 61.8% retracement of the rise from the 79.79 low of April 1995 to the 147.62 high of August 1998. A breach below 105.75 paves the way for 105.20.
Cable hits 3 ½ month high
UK service PMI rose to 56.3 in October from September’s 54.7 in September, defying expectations of a 54.5 forecast and standing in expansion territory for the 19th straight month. The compiler of the survey—the Chartered Institute of Purchasing & Supply—said the October's index "was marginally above the long-term series average and representative of strong sector growth at the start of the final quarter of 2004". Despite the modest acceleration in manufacturing and service surveys, the Bank of England is rather drawn to the low inflation and softening the housing market, thus not necessitating for rate hike.
Tomorrow’s Bank of England decision should keep rates unchanged at 4.75%
Cable surged to a 3½ month high at $1.85, topping at the trend line resistance extending from the $1.9140 high thru the $1.8769 high. The figure also spells the 61.8% retracement of the $1.9140-1.7479. Subsequent resistance follows at $1.8550 and 1.8580. Support starts at 1.8445-50 and $1.84. Key support stands at 1.83 figure—the 50% retarcement of the move
At 10:00 AM US October September Services ISM (exp 58.4, prev 56.7) US September Factory Orders (exp 0.5%, prev –0.1%)
The dollar made choppy moves overnight against the majors as the US Presidential election has yet to determine a clear victor. The election now hinges on the key swing state of Ohio, which holds 20 electoral votes – a state John Kerry must win in order to stay in the race. Although representatives from the Bush camp have already declared Ohio a foregone conclusion and thus re-election, the possibility of provisional ballots in favor of Kerry have held the results up in the air.
The coming session will see US non-manufacturing ISM, due out at 10:00 AM EST. Markets expect the survey to post a significant gain to 58.4 in October, up from the previous month at 56.7. Factory orders will also be released today, seen reversing last month’s 0.1% drop and climbing 0.55 in September.
Cable Propped by CIPS
UK non-manufacturing CIPS/PMI bested expectations of a drop to 54.5, instead climbing to 56.3 in October, and up from September at 54.7. The new business index edged up to 56.4, from 55.1, while input prices jumped to a four-year high at 62.1, versus 60.2. However, the employment component dropped to its lowest level since June at 52.6, from 53.5.
Cable received a boost following the better than expected CIPS data, edging back toward 1.84. Resistance starts at 1.8415, followed by 1.8460 and 1.85. Subsequent ceilings are seen at 1.8540, backed by 1.8580 and 1.86. Meanwhile, support begins at 1.8340, followed 1.83 and 1.8260. Additional floors are seen at 1.8230, followed by 1.82 and 1.8170.
Euro Hovers Above 1.27
The Eurozone non-manufacturing PMI was better than expected at 53.5, up from the September at 53.3. The input prices hit its highest level since November 2000 at 60.6, while the new business index dropped to a 14-month low at 52.1.
The euro teetered around the 1.27-level overnight. The pair finds support at 1.2670, followed by 1.2630 and 1.26. Subsequent floors are seen at 1.2575, backed by 1.2540 and 1.25. Resistance begins at 1.2750, followed by 1.28 and 1.2840. A move higher will target 1.2880, backed by 1.29 and 1.2925.
USDJPY
Dollar/yen continues to trade at its lows. Support begins at 106.30 and 106. Additional floors will emerge at 105.70, backed by 105.20 and 105. Meanwhile, gains will target interim resistance at 107, followed by 107.40 and 107.80. Subsequent ceilings are seen at 108, followed by 108.30 and 108.70.
Aussie Unchanged, RBA Unchanged
The Reserve Bank of Australia held monetary policy unchanged, as widely expected by market participants. AUDUSD holds steady beneath the 75-cent level. A move above 0.75 will target 0.7530, followed by 0.7560 and 0.76. Subsequent ceilings are seen at 0.7645, backed by 0.7690 and 0.7750. Support begins at 0.7460, followed by 0.7420 and 0.74. Additional floors will emerge at 0.7370, backed by 0.7340 and 0.73.
USDCAD
Resistance in the pair starts at 1.23 and 1.2350. Subsequent ceilings will emerge at 1.2375, followed by 1.24 and 1.2450. Losses will find interim support at 1.22, followed by 1.2160 and 1.2130. Further Canadian strength will target 1.21, backed by 1.2050 and 1.2020.
Swiss
Resistance for the pair is seen at 1.2080 and 1.2150. Subsequent ceilings are seen at 1.2230, followed by 1.23 and 1.2350. Support begins at 1.20, followed by 1.1950 and 1.19. Subsequent floors are seen at 1.1840, followed by 1.18 and 1.1730.
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