bio1

US Dollar Retreats as Forex Markets Prepare for Non Farm Payrolls (Euro Open)

Friday, 07 November 2008 05:51:31 GMT  |  Ilya Spivak, Currency Analyst

The Euro and the British Pound rebounded against the US dollar in overnight trading, the former pushing back above 1.27 while the latter stabilized near 1.5650. Traders will likely look past the European data docket in the upcoming session as the Non Farm Payrolls report looms just around the corner.

Key Overnight Developments

• Australian Construction Sector Shrinks for Eighth Straight Month
• Euro, British Pound Rebound Against the US Dollar


Critical Levels 



The Euro rebounded higher in overnight trading, pushing back above the 1.27 level. The British Pound followed suit, managing to retake the 1.56 level to stabilize near 1.5650. Technical positioning points to a near-term upward correction in the Euro and the Pound before both pairs see the dominant bearish trends regain momentum.


Asia Session Highlights 



Australia’s Performance of Construction Index was the only piece of notable economic data on the calendar for the overnight session. The metric ticked marginally higher to 36.4 in October from 31.8 in the preceding month but remained firmly in contractionary territory. This marks the eighth consecutive month of falling sentiment as the slowing economy has consumers pare back spending while tight credit market conditions cut off lending. The housing market stumbled sharply in recent months, with real estate prices down the most since 1978 in the third quarter while building approvals sank to two-year lows in September. The Reserve Bank of Australia has lowered interest rates by 2 full percentage points since August to stem the economy’s slide into recession, with the market pricing in at least another 125 basis points in cuts over the next 12 months.


Euro Session: What to Expect 



Switzerland’s Unemployment Rate is expected to tick up to 2.5% in October. Employment reached a 6-year high in June and has since started moving in the opposite direction as Swiss companies cut back in response to slowing global demand (particularly from the EU, which accounts for 60% of Switzerland’s exports). Yesterday, the Swiss National Bank participated in a coordinated European interest rate cut, slashing rates by 0.50% citing “worse-than-expected deterioration of the global economic outlook”.

Germany’s Trade Balance figure is expected to see a greater surplus in September than the preceding month, with economists’ forecasts calling for a print at 10.3 billion euro. A likely catalyst for the better outcome is the sharp depreciation in the Euro: the single currency fell a substantial 4% through September, making European-made goods comparatively cheaper for overseas consumers and boosting exports. The broader Current Account metric is seen adding to the surplus as well, with the aforementioned trade side of the equation as the key catalyst. Indeed, the capital side should prove to be deterrent as German stocks lost 8.9% in September while fixed income instruments added only 1.1%. The same forces are expected to see France’s Trade Balance show a narrower deficit, down to -4.9 billion euro in September from 5.4 billion in the preceding month. A similar dynamic was on display as the Australian trade surplus nearly tripled expectations earlier this week.

On balance, these releases are unlikely to prove especially market-moving with the US Non Farm Payrolls release waiting just around the corner. American fundamental data has become the key barometer for the global economic slowdown, with traders looking for a rebound in the States to reboot consumer spending and lift up troubled markets worldwide.


To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars