DY: U.S. Dollar Extends Advance Ahead of Non-Farm Payrolls, Japanese Yen Gives Back
The Euro weakened for the third-day and slipped to a fresh yearly low of 1.3647 as the greenback strengthened across the board, and the single-currency is likely to face increased volatility going into the North American trade as U.S. non-farm payrolls are forecasted to increase 15K in January.
Talking Points
• Japanese Yen: Losing Ground Following Yesterday’s Sharp Rally
• Pound: U.K. PPI Tops Forecast
• Euro: German Industrial Outputs Tumble Lower in December
• US Dollar: Non-Farm Payrolls, Consumer Credit on Tap
U.S. Dollar Extends Advance Ahead of Non-Farm Payrolls, Japanese Yen Gives Back
The Euro weakened for the third-day and slipped to a fresh yearly low of 1.3647 as the greenback strengthened across the board, and the single-currency is likely to face increased volatility going into the North American trade as U.S. non-farm payrolls are forecasted to increase 15K in January. However, we may see a corrective retracement in the EUR/USD over the following week as the daily RSI continues to push deeper into oversold territory, with price action failing to hold below the 1.3650 level.
Meanwhile, European Central Bank board member Erkki Liikanen reiterated President Jean-Claude Trichet’s remarks from the rate decision and stated that the interest rate remains ‘appropriate,’ and argued that the Governing Council “should start to withdraw these non-standard measures” at next month’s meeting as the economy emerges from the recession. Nevertheless, the economic docket showed industrial outputs in Germany unexpectedly slumped 2.6% in December after advancing 0.7% in the previous month, while the annualized rate of production slipped 7.1% from the previous year amid expectations for a 3.7% contraction. The data reinforces a dour outlook for the euro-region as the central bank continue to see a risk for a protracted recovery, and businesses may keep a lid on production and employment throughout the first-half of the year as policy makers maintain a cautious outlook for the region.
The British Pound extended the decline from earlier this week and broke out of its broad range to reach a fresh monthly low of 1.5654, and the GBP/USD may continue to retrace the advance from the previous year as market participants speculate the Fed to hike rates in the second-half of 2010. Meanwhile price pressure continued to intensify in the U.K., with producer input prices rising 2.0% in January to top forecasts for a 0.8% rise, while output prices increased 0.4% after gaining 0.5% in the previous month. As a result, the annualized PPI advanced to 3.8% from 3.5% in December, while the core rate unexpectedly slipped to an annual pace of 2.5% from 2.6% in the month prior. The data suggests the Bank of England may continue to normalize policy over the coming months as the central bank aims to balance t he risks for growth and inflation, but we may see Governor Mervyn King hold a dovish outlook for future policy as he expects price pressures to fall back below the 2% later this year.
The greenback strengthen across the board, with the USD/JPY paring the previous day’s decline to reach a high of 89.78, and the reserve currency is expected to face increased volatility going into the North American session as the annual rate of unemployment is expected to hold at 10.0% in January. At the same time, non-farm payrolls are projected to increase 15K after unexpectedly contracting 85K in December, while average hourly earnings are anticipated to hold steady at an annual pace of 2.2%. In addition, consumer credit is forecasted to decline $10.0B during the last month of 2009 after tumbling $17.5B in November, while Treasury Secretary Timothy Geithner will be attending the G-7 meeting over the weekend in Iqaluit, Canada.
