• USD: Mixed, nfp slightly better than expectation, unemployment rises to 26 year high
  • JPY: Lower, Q2 GDP confirms Japan's economy emerging from recession
  • EUR: Lower, pressured by continued deterioration in US jobs outlook
  • GBP: Lower, UK auto sales rise for second month in a row in July
  • CAD and AUD: AUD higher & CAD higher, Canada's unemployment rises but jobs growth improved

Overview     
USD traded mixed Friday as investors digest the release of US August unemployment. The headline unemployment rate rose to 9.7% from 9.4% last month which was its highest level since June of 1983 and nonfarm payrolls declined by 216k which was slightly better than market consensus of -220k. The August employment report shows that nonfarm payroll job loss has slowed but the report suggests that the US is facing a jobless recovery and the recovery will likely be weak. Stubbornly high level of unemployment in the US will hurt consumer demand. In pre-USD trade USD traded lower against the growth related currencies mixed against Europe and higher against the JPY as investors continue to try to assess the outlook for the global recovery. CAD was supported by report of an unexpected rise in jobs created in August. GBP was supported by report that UK auto sales rose for the second month in July. JPY was pressured by uncertain outlook for risk as equity markets trade mixed. The IMF says that the global economy is emerging from downturn and expects the recovery to be sluggish. Fed's Fisher says the US is likely to enter a prolonged period of sluggish growth and unemployment to remain high. Economist Stiglitz sees significant chance of another contraction in the US economy. Today's slightly better than expected decline in nfp sparked light USD demand as the data contributes to uncertainty about the strength of the US recovery.

Today's US data:
August nfp falls 216K and the unemployment rate rises to 9.7%. July job losses were revised to -463 from -443  and June job losses revised -276 from -247. One out of every 10 Americans are out of work. The nfp is at its best level in over a year and unemployment is at a 26 year high. The USD firmed after the release of the unemployment as the report contributes to uncertain outlook for the US recovery. ECRI rose to a ten month high indicating the risk of deflation has diminished.

Upcoming US data:
Monday is Labor Day holiday and the US markets are closed. Next week's US economic calendar includes the September 8th release of July consumer credit expected at -4.5 bln compared to -10.3 bln last month. On September 10th initial jobless claims for week ending 09/05 will be released expected at 560k compared to 570k last month along with July trade balance expected at -27.5 bln compared to -27.1 bln last month.           On September 11th August import prices will be released expected at 0.9% compared to -0.7% last month along with preliminary University of Michigan consumer sentiment expected 65.3 compared to 65.7 last month. July wholesale inventories and the Treasury budget for August will be released on September 11th as well. Wholesale inventories are expected to fall by 1% compared to -1.7 last month the Treasury budget is expected to -161.50 bln compared to -111.91 bln last month.

JPY
JPY traded lower as equity markets edged higher and US nfp is reported slightly better than expected. Report that Japan's Q2 GDP was unrevised confirms that Japan's economy has emerged from recession. There was limited reaction to report that the DPJ party favors strong JPY to stimulate purchasing power and consumer demand. Japan's incoming PM Hatoyama says Japan will maintain strong ties with the US. JPY has been firming since the Japanese last weekend election which ushered in the DPJ party. The DPJ party is expected to focus on promoting domestic growth and to move the Japanese economy away from dependence on export led growth. Optimism about improving domestic economic outlook in Japan has encouraged demand for the JPY and stocks. JPY price direction will focus on equity markets and risk sentiment.

Next week's Japanese economic calendar includes the September 8th release of August money supply expected at 2% compared to 1.9% last month. On September 10th July current account and August corporate good prices will be released along with leading indicators for July. Corporate good prices are expected to rise 0.5% compared to 0.4% last month and leading indicators are expected flat. On September 11th July machinery orders will be released along with July industrial output. Machinery orders are expected to fall 26% compared to -29.7 last month.

Key technical levels to watch in USD/JPY include support at 91.75 the July 13th low with resistance at 93.55 the August 31st high.

EUR
EUR traded lower after the release of US August unemployment as the data generates concern about the outlook for the US recovery and limits risk appetite. ECB President Trichet discussed the possible conditions for exit from unconventional monetary policy. According to Trichet inflation risk would be the main reason for an eventual exit from the accommodative policy and he expects liquidity to remain for the time being. According to Trichet many of the credit measures will unwind naturally. Trichet went on to say that the exit strategy does not include considerations about interest policy. The ECB appears to be signaling that rate policy is a separate issue from the exit strategy from unconventional stimulus. ECB Stark says that the withdrawal of stimulus will come when upside risks to price stability merge. ECB's Weber warns that the financial crisis is not over yet and that there's a great deal of uncertainty about what lies ahead for the EU and global economy. There were no major EU economic reports released today but Swiss August inflation was reported at 0.1%. The Swiss CPI report confirms that inflation risk in Switzerland remains low and this may increase the risk of SNB intervention. Officials from the UK, France and Germany have written a letter to the G-20 stating that they should stick to current stimulus plans. Central bankers and government officials are trying to discourage speculation that they will quickly exit quantitative ease and withdraw stimulus fearing that too quickly and exit would put the global recovery at risk. The G-20 meets this weekend and US Treasury Secretary Geithner is expected to seek a globally coordinated exit strategy from stimulus policies and to state that it's too early to begin removing economic stimulus.

Next week's EU economic calendar includes the September 7th release of September Sentix index expected -14 compared to -17 last month along with German July industrial orders expected at 3% compared to 4.5% last month. On September 8th German July trade balance will be released expected when at 11.3 bln compared to 11 mln last month along with German July industrial production expected at 0.3% compared to -0.1% last month. On September 9th German August CPI will be released expected at 0.1% compared to flat last month.

The technical outlook for the EUR is mixed as EUR remains range bound. Expect EUR support at 1.4175 the September 1st low with resistance at 1.4380 the September 1st high.

 

GBP
GBP opened higher supported by report of rising UK auto sales. GBP turned lower after the release of US August unemployment as the unemployment report clouds the outlook for the US and global recovery. UK auto sales rose for the second month in a row in July by 6%. The rise in auto sales is another hopeful sign that the UK economy recession is ending. This week the UK reported better than expected services and construction PMI and rising business expectations. GBP has been underperforming with selling pressure attributed to ongoing concern about the outlook for the UK economy and in response to the BOE's recent decision to expand quantitative ease. In addition, GBP has been pressured by report of a record budget deficit in July and concern that rising deficit spending will force the UK government to issue more debt and eventually raise taxes to cover the spending shortfall. Focus turns to next week's BOE policy meeting. No policy change is expected. The trade will be looking to see whether they BOE outline possible exit strategies from quantitative ease. It is widely expected that the BOE will be the last central bank to withdraw stimulus because of concern about the tenuous outlook for recovery in the UK.

Next week's UK economic calendar includes the September 7th release of RIC's house price balance expected at -7 compared to -8.1 last month. On September 8th August BRC retail sales will be released expected at 1.5% compared to 1.8% last month along with Nationwide Consumer confidence expected at 62 compared to 60 last month. On September 9th trade July trade balance will be released expected -6.32 bln compared to -6.45 bln last month along with NIESR GDP estimate expected unchanged at -0.4%. BOE meet on September 10th, no policy changes is expected. On September 11th PPI will be released expected at 0.6% compared to 0.5% last month.

The technical outlook for GBP is mixed as GBP rises back above 1.6300. Expect near-term support at 1.6150 the August 27th low with resistance at 1.6445 the August 25th high.

CAD
CAD traded higher supported by report of an unexpected rise in Canada's employment growth in August. Canada reported that the labor market had 27,100k new jobs in August, the consensus was for 10K loss in employment growth. The trade ignored report that Canada's August unemployment rate rose to 11 1/2 year high of 8.7% from 8.6% last month. Most of the improvement in Canada's jobs growth was part-time work .CAD has underperformed this week pressured by increased political uncertainty in Canada as the Canadian Liberal party said late Tuesday that they would no longer support the minority government. The Liberal party has called for a no-confidence vote. The threat of intervention also limits demand from the CAD. BOC's Lane last week expressed concern about the strength of the CAD and the impact on Canada's recovery. Lane's comments increase the risk of intervention to limit CAD gains.

Next week's Canadian economic calendar includes the September 8th release of July building permits expected at 0.6% compared to 1% last month. On September 9th July building permits will be released expected at 0.6% compared to 1% last month. On September 10th July trade balance will be released expected at 0.9 bln compared to -0.06 bln last month. July New Housing Price Index will be released on September 11th expected at 0.1% compared to -0.2% last month.

The technical outlook for CAD is mixed negative as USD/CAD rises falls below 1.1090. Look for near-term support at 1.0715 the August 25th low with resistance at 1.1125 the August 17th high.

AUD
AUD traded higher supported by global recovery hope as the IMF says the global economy is emerging from downturn and Japan's Q2 GDP confirms that the Japanese economy is emerging from recession. AUD has been the best performing currency supported by RBA rate hike speculation and a sharp rise in the price of gold. Gold prices have surged over the last couple of days in reaction to report that the sovereign wealth fund of China is selling some of China's USD reserves for gold. AUD gains were partly limited by today's release of US August unemployment that points to a weak recovery in the US. The RBA is expected to be the first central bank to hike rates as the global economy recovers. The Shanghai Index closed higher adding support to the AUD.AUD price action is closely correlated to risk sentiment and the direction of equity markets in particular Shanghai Index. Wednesday, Australia reported much stronger than expected Q2 GDP. Stronger than expected GDP encourages speculation that the RBA will hike interest rates at the next policy meeting. Some analysts suggest that the RBA is actually falling behind the rate hike cycle and a number of analysts expect the RBA to raise rates before year end. The RBA elected to hold policy steady at 3% Tuesday and failed to lay out a timeline for rate hikes.

Next week's Australian economic calendar includes the September 9th release of July retail trade expected at 0.5% compared to -1.4% last month. On September 10th August employment will be released expected unchanged at 5.8% with employment change at -7k.

The technical outlook for the AUD is positive as AUD rises above 8400. Expect AUD support at 8315 the September 3rd low with resistance at 8480 the August 15th high and 8525 the September 22nd high.