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-US Dollar, Japanese Yen Finally See Divergent Price Action as US NFPs Fall Less Than Expected
-British Pound, Euro Tumble the Day After BOE, ECB Policy Meetings
-Canadian Dollar Dives Amidst Mounting Job Losses,
-Rising Unemployment RateNew Zealand Dollar,
-Australian Dollars to See High Event Risk Next Week

US Dollar, Japanese Yen Finally See Divergent Price Action as US NFPs Fall Less Than Expected
The US dollar rallied in response to news that US non-farm payrolls (NFPs) for the month of May fell by only 345,000 in May, the slowest decline since September 2008. NFPs had been forecasted to fall by 520,000, and while the results still reflect the seventeenth straight month of job losses, they also show that the extent of the decline has been easing steadily since the start of the year. That said, the US unemployment rate rose more than anticipated to 9.4 percent - the highest since August 1983 - from 8.9 percent, which was partly the result of an increase in the participation rate to 65.9 percent.

The US dollar's reaction was interesting in that we haven't seen fundamental forces drive the currency in quite a while, as the greenback has generally traded as a safe haven asset in recent months, gaining during times of risk aversion and stock market losses while losing at times of improved investor sentiment. A continuation of this dynamic bodes well for US dollar bulls, as US economic data has generally suggested that the recession bottomed between Q4 2008 and Q1 2009. On the other hand, the USD/JPY breakout from a lengthy period of consolidation was enough the lead the Japanese yen to become the weakest of the majors. Also, for much of Friday, US equities traded in positive territory but ended down from their intraday highs, as the DJIA closed up 13 points at 8763 while the S&P 500 closed down 2 points at 940. Overall, the US dollar may have lost its link with risk trends, while the Japanese yen has not, suggesting we're seeing a bit of divergence in the low-yielders, though we need more than one day of price action to call it for sure.

Next Thursday, the Commerce Department is forecasted to report that US retail sales rose 0.5 percent in May after tumbling 0.4 percent in April, and excluding autos, retail sales are anticipated to increase by 0.2 percent. However, there is potential for a worse-than-expected result, as the latest ICSC chain store sales numbers show that consumption plunged by 4.6 percent in May from a year ago. On Friday, the preliminary reading of the University of Michigan's consumer confidence index for the month of June is forecasted to rise for the fourth straight month to match the March 2008 high of 69.5. As it stands, recent improvements in the index have been due to increased optimism on the economic outlook, as sentiment on current conditions actually slipped between May and April, suggesting that consumers are seeing any economic changes in their daily life, but are convinced that they will see it eventually. Indeed, the pace of job losses has started to slow, but if consumers don't start to see more encouraging signs of growth in the near-term, confidence in the outlook could start to fall.

Related Articles: US Dollar Japanese Yen Monthly Exchange Rate Forecast

British Pound, Euro Tumble the Day After BOE, ECB Policy Meetings
The British pound and euro both took a beating against the US dollar on Friday, but the moves had more to do with the US side of the equation. Looking to the specific currency pairs, GBP/USD fell approximately 300 points to end the day near previous congestion between 1.5900-1.6000. Meanwhile, EUR/USD finished down about 200 points at 1.3968, with the close below trendline and psychological support at 1.4000 suggesting that additional declines may be in store for the pair.

There wasn't much in the way of market-moving economic data on hand for either the British pound or euro specifically, though UK producer prices rose for a third month in May by 0.4 percent, as companies passed on higher fuel costs and a tax increase on alcohol and tobacco products. Instead, traders may be keeping Thursday's news in mind. The Bank of England left rates at 0.50 percent once again and didn't say much in their policy statement, but rumors that UK PM Gordon Brown was preparing to resign stoked concerns about political instability, and that sentiment appears to have been difficult for the markets to shake.

The European Central Bank also left rates unchanged at 1 percent, and ECB President Jean-Claude Trichet's subsequent press conference initially offered some support for the euro, as he called current rates appropriate and said that recent data suggest that the Euro-zone recession may have bottomed during the previous two quarters. However, during the Q&A session, Trichet said that rates aren't necessarily at their lowest level, suggesting there may be room for additional rate cuts. He also went on to say that the ECB will begin their 60 billion euro covered bond purchasing program in July, and will buy bonds directly in the primary and secondary markets. While the credit easing program is relatively small compared to those implemented in the UK and US, the prospect of lower yields, along with potentially lower benchmark rates, is enough to indicate that the euro could fall even lower.

Related Articles: Euro US Dollar Monthly Exchange Rate Forecast, British Pound US Dollar Monthly Exchange Rate Forecast

Canadian Dollar Dives Amidst Mounting Job Losses, Rising Unemployment Rate
The Canadian dollar was the second weakest of the majors, as disappointing labor market news erased optimism stemming from the Bank of Canada's policy statement released on Thursday. The Canadian net employment change rose by a greater-than-expected 41,800 in May, leading the unemployment rate up to 8.4 percent from 8.0 percent, versus forecasts for a rise to 8.2 percent. The news suggests that significant downside risks remain for economic growth and inflation, raising the potential for quantitative easing somewhere down the line.

New Zealand Dollar, Australian Dollars to See High Event Risk Next Week
Next week, the New Zealand dollar and Australian dollar - bother of which held up well on Friday in light of US dollar strength - will continue to see significant volatility, as the Reserve Bank of New Zealand will announce their latest policy decision and Australian labor market data will hit the wires. On Wednesday, the RBNZ may leave rates unchanged for the first time since June 2008 at 2.50 percent. However, a reiteration of their previously dovish policy statement could weigh heavily on the Kiwi. On the same data, Australian data is projected to show that the unemployment rate rose back up to 5.7 percent in May from 5.4 percent while the net employment change is anticipated to fall by 30,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 21:30 EDT.

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Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com