Faced with the prospect of stellar employment report for the world’s biggest economy and grumbling debt concerns in continental Europe, investors sold the euro in early trade driving it below the weakest point on Nov. 30. Indeed apart from the briefest appearance the following day the euro has remained firmly above $1.30 on each trading day since then until nervous traders forced it below there in Thursday’s trading. The dollar appears in the driver’s seat with many trying to stay out of its path after several key economic reports vilifying its bout of strength. However, a weaker than hoped for headline number left the dollar sitting in a road block as investors tried to figure out its next direction.
Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc.
U.S. Dollar – Friday’s jobs report fell short of expectations but will not stop the dollar’s strength going forward. The headline addition of 103,000 jobs was shy of elevated expectations for at least 150,000 new positions after initial claims broke below 400,000 for the first time in two years and an ADP report two days earlier rose to a series record. However, the November data was revised higher driven by a jump in private payroll data. The bigger news was a three-tenths drop in the headline rate of unemployment to 9.4% caused by a fall in the workforce. While today’s report didn’t deliver the gloss that investors might have hoped for, the Fed will be pleased to see an outright lower rate of those out of work. The dollar index spiked lower immediately on the release as expectations for a stronger number were clearly running too high. Since then the index has moved back towards the day’s high and remains 0.25% higher on the session at 81.06.
Euro – Ongoing nervousness amongst traders reached a breaking point on Thursday following reports that European leaders were picking up on plans that would allow governments to write down the value of senior debt holders’ bond values in the event of another blow-up in order to protect tax payers. The story rams home the very real prospect that financial bloodletting isn’t yet over. Thin trading conditions towards the end of 2010 saw the euro rise steeling investors to believe that things were perhaps less worrisome. Today’s ongoing widening of peripheral yield spreads over and above those of Germany has reminded traders that all is not well in the Eurozone. The Swiss franc has once again bucked up against the euro in a sign that investors are repositioning into its safety. Ahead of the U.S. employment report the euro had slipped at $1.2950 against the dollar. The confusion over the health of the U.S. economy briefly allowed the euro to swiftly recover to $1.3019 according to Interactive Brokers data before its slump resumed. Shortly after reaching a session high the euro collapsed to a new low indicative of the bearish underlying attitude towards the single currency. It traded last at $1.2946 having reached $1.2936.
Japanese yen – The dollar pared earlier gains against the yen that lifted it to ¥83.68 following the disenchantment with the employment data. The dollar is now back to an unchanged ¥83.29.
British pound – An 18% year-on-year decline in new car registrations through December hampered the pound, which was trading lower ahead of U.S. data at $1.5433. Since the U.S. data the pound has turned higher on the session and buys $1.5486.
Aussie dollar – The Aussie remained pushing on its two-week low as economists and politicians attempt to come to grips with the impact and cost of the devastation imposed upon the vast Queensland territory. The Aussie fell to 99.16 earlier in the day but trades at 99.62 following the more conservative employment report in the U.S.
Canadian dollar –Canadian employers added 38,000 new full-time jobs while part-time jobs declined during December to leave a net addition of 22,000 jobs for the month. The local dollar advanced to trade at $1.0083 against the greenback. The loonie advanced to $1.0100 straight after news that the U.S. unemployment rate dipped sharply to 9.4%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.