NEWS / Foreign Exchange

US Jobs Fails to Support Dollar

11/2/2007 2:54 PM: EUR/$..1.4503 $/JPY..114.60 GBP/$..2.0892 $/CHF..1.1528 AUD/$..0.9200 $/CAD..0.9342

US Jobs Fails to Support Dollar

Markets shrugged off a sharply higher than expected October US non-farm payrolls report, battering the dollar to fresh lows against the euro at 1.4528 and the sterling just beneath the 2.09-level. Lingering jitters over credit conditions in the US continue to plague the greenback.

The October labor report revealed robust growth in non-farm payrolls, sharply exceeding market expectations by twofold at 166k compared with a downwardly revised September reading of 96k. The unemployment rate remained unchanged at 4.7%, while hourly wages increased by 0.3%. Durable goods orders for September were unchanged from the previous month posting another 1.7% decline, while the ex-transports reading improved by 0.4%. Factory orders gained by 0.2% in September compared with a 3.3% drop a month prior.

The dollar initially rallied off the strong jobs data but quickly relinquished its strength as traders bought up the majors on the dip ??“ reaffirming heavily bearish dollar sentiment. Renewing concerns about liquidity conditions were new Fed injections today that resulted in the Fed??™s largest infusion of funds since September 2001. The Fed announced repurchases totaling $41 billion, exceeding the $38 billion injected at the height of the credit crunch panic in August.

Euro Hits New High

The euro holds onto its gains above the 1.45-level slightly beneath its all-time high against the dollar at 1.4528. Traders will look ahead to next week??™s ECB monetary policy meeting, in which change is expected. However, markets will closely scrutinize commentary from ECB President Trichet to determine whether another rate hike will be signaled. With recent inflation in the Eurozone ticking higher, we look for the ECB to maintain its current tightening cycle and hint at the possibility of a 25-basis point rate hike before year-end to 4.25%.

EURUSD will encounter interim resistance at 1.4530, followed by 1.4570 and 1.46. Subsequent ceilings will emerge at 1.4650 and 1.47. On the downside, support begins at 1.4480, backed by 1.4440 and 1.44. Additional floors will emerge at 1.4360, followed by 1.4320 and 1.43.

GBP Flirts with 2.09

The sterling reached another multi-decade high just beneath the 2.09-level in the Friday session as traders positioned for additional Fed rate cuts while the BoE is seen remaining on hold given recent buoyant UK economic data. The Bank of England deliberate policy and announces its decision next Thursday, with no change is expected.