The U.S. Dollar weakened against the Euro after the release of the ADP employment report which showed the U.S. jobs market deteriorated last month.
The Euro has been under pressure lately because traders had been placing bets that the European Central Bank would have to cut interest rates at its next meeting on January 15. Investors were also speculating the U.S. economy was in a better position to recover from the recession before the Euro Zone. After today's report, investors lightened up bullish Dollar positions to adjust for the bearish labor number.
The rally in the GBP USD continued on Wednesday as a bearish unemployment report helped drive the Dollar lower. The size of the expected drop in employment came as a surprise to traders who now expect a more protracted recession. Yesterday’s Fed minutes contributed to the early weakness. According to the Fed, there are still substantial risks to the slumping economy. The Bank of England is expected to announce a rate cut tomorrow as well as a new plan to buy back risky assets.
News that the U.S. economy was headed toward a protracted recession gave Swiss traders reason to repatriate their funds. Investors are once again looking for safety and liquidity outside of the U.S.
The USD JPY lost ground after several days of strength. Traders bought the Yen in anticipation of a worse than expected U.S. unemployment report on Friday. After this short-term price adjustment traders should look for the Dollar to once again gain ground versus the Yen. The announcement of a new stimulus plan by Obama should help support the Dollar. In addition, the Japanese economy is still deteriorating led by lower auto exports.
A huge break in crude oil helped put downside pressure on the Canadian Dollar. The Canadian economy is very sensitive to a drop in crude oil. If crude oil begins another leg down and the natural gas conflict between Russia and Ukraine abates then look for even more pressure to begin. Today's weakness indicates that the Bank of Canada is likely to reduce interest rates to zero.
Australian Dollars fell on Wednesday after traders sold higher risk assets. The equity markets broke following the release of ADP's Employment Report. This report indicated that a prolonged contraction in the U.S. economy is expected. Less demand for higher risk assets will keep downside pressure on the Aussie. The drop in crude oil is also bad for commodity prices. Lower commodity prices will hurt the Australian export market. Look for the AUD USD to drop if commodities and equities continue to weaken.
The NZD USD is in the same position as the Aussie. Lower commodity markets and equity markets will lead to a weaker economy and more downside pressure on the currency. Based on its higher interest rates, there will be interest in the New Zealand Dollar when traders want to take on more risk. If traders become risk adverse like they were over the summer, then look for a further decline.
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