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EUR/USD Fundamental Outlook at 1500 GMT (EST + 0500)
The euro moved sharply lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3990 level and was capped around the $1.4155 level. The common currency gaved back most of yesterday"s gains ahead of the long holiday weekend in the U.S. As expected, the European Central Bank kept monetary policy unchanged and ECB President Trichet reported interest rates remain "appropriate." Trichet also said recent economic data indicate the global economy has reached an "inflection point in the cycle" and said policymakers "have to remain very alert." He added risks to the economic outlook are "balanced" and added inflation expectations are "anchored." Most traders walked away with the impression that official eurozone interest rates will remain unchanged for quite some time. The ECB will begin buying covered bonds "" including mortgages and public sector debt "" on 6 July as part of its quantitative easing framework. The euro also moved lower after Ireland"s credit rating was downgraded by Moody"s and after it was reported the EMU-16 unemployment rate climbed to 9.5% in May, the highest level in ten years. Also, eurozone producer prices were off for a tenth consecutive month in May, down 0.2% m/m and 5.8% y/y, the largest annual decline since at least January 1982. In U.S. news, it was reported that June non-farm payrolls fell by 467,000, much worse than the -325,000 forecast. The national unemployment rate rose to 9.5%, less than expected, but many economists continue to suggest the national unemployment rate will reach the psychologically-important 10.0% level. Average hourly earnings were up 2.7% y/y, below expectations. Euro bids are cited around the US$ 1.3435 level.
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