NEWS / Foreign Exchange

Currencies Dormant After Dollars NFP Dash

Talking Points

???    Japanese Yen: Eco Watchers print above 50 for first time since
???    Euro:  dormant after NFP
???    British Pound: marking time as desks empty
???    US Dollar: calendar barren

Currencies Dormant After Dollars NFP Dash

In what had to be the quietest overnight trading session since Christmas week,  currencies spend Asian and early European hours consolidating their losses against the greenback after Friday??™s surprisingly strong  US NFP report.  Capital markets in Europe and London remained closed today for Easter Monday  and with most dealing desks on skeleton crews few players expect any volatility for the rest of the day. 

Nevertheless Friday NFP report which printed at 180K vs. 130K forecast continued to reverberate through the market. The employment report dispelled any notion that US was on the verge of entering into a recession as a result of the implosion in the sub-prime housing market. Although dollar bears came up with the usual set of objections arguing that the birth/death adjustment added 128K jobs to the headline number and focusing on the fact that most of the jobs were created in the lower paying retail sector, the undeniable truth of the matter is that for the time being Friday??™s data contradicted the dollar doomsday scenario and stopped the euro rally in its tracks.

At the very least,  Friday??™s NFP numbers created serious doubts regarding the possibility of any Fed rate cuts in the second half of the year.  At present, US economic  data supports the hawks at the FOMC and US short term rates are unlikely to decline in the foreseeable future. Indeed, despite Friday??™s holiday shortened trading, US bond yields spiked on the news and the widening out of the interest rate differential should underpin the greenback in FX trading this week

The week itself is remarkably empty of any meaningful economic data with only US PPI report on  Friday offering some fresh perspective for the market.  With euro bullish sentiment now stymied, one possible event that could cause further EURUSD weakness is the ECB rate announcement this Thursday.  Although traders expect no action from Mr. Trichet and co., the actual reality of the announcement may cause some post news selling especially if Mr. Trichet remains characteristically coy about the chances of a rate hike in May. In short, trading this week may meander in range bound fashion, but given the positive US economic news on Friday and the lack of any momentum on the European side, the EUR/USD may well see a much needed retracement this week to work off some of the  overbought sentiment in the pair.

Finally, the sole piece of economic news today, the Eco Watchers survey from Japan proved positive, as the report broke above the 50 boom/bust level for the first time in 6 months. This report is just the latest in a series of data points from Japan that suggest that consumer sentiment and spending in the Land of the Rising Sun  continues to improve. The news, however, had little impact on USDJPY as the market remains focused on the BOJ rate announcement tomorrow night. No action is expected from the Japanese central bank and if the monetary authorities continue to suggest that  any tightening will be ???gradual???, the yen may be sold once more as carry traders will plow back into the pair.