by Darrell Jobman, Editor-in-Chief, TraderPlanet.com
Commentary for Friday, November 7, 2008
EUR/US$
The Euro found support on dips towards the 1.2650 level on Friday and pushed to a high of 1.2850, but was unable to sustain the advance. It settled close to the middle of the range and struggled to gain support from a rally on Wall Street.
The US employment data was significantly weaker than expected with a sharp 240,000 decline in non-farm payrolls for October while there was also a large upward revision to the September data with job losses of 284,000. The unemployment rate rose further to 6.5% from 6.1% compared with expectations of a 6.3% rate and this was the highest rate since 1994.
There was weakness across all main private sectors with government employment the only area to secure a monthly increase.
The data will reinforce fears over the economy, especially in view of the sharp September revision even if this was distorted by a drop in government employment. In response, markets continued to price in a further interest rate cut by the end of 2008. Fed Governor Lockhart stated that the US was suffering a severe market crisis and also that interest rates could be cut to zero.
Dollar Libor rates continued to decline, maintaining the consistent fall seen during the past two weeks and this continues to suggest some easing of conditions in credit markets.
The German industrial data remained weak with a sharp monthly decline in production following the decline in orders registered earlier in the week. The sharp fall will reinforce expectations of recessionary conditions within the Euro-zone. There will be further expectations that interest rates will be cut again at the December meeting and Euro-Group head Juncker stated that the ECB should not be judged until the end of 2088.
Yen
Asian equity markets managed to recover slightly on Friday and this eased immediate upward pressure on the yen, although the impact was limited by major fears over the global economic environment following a strong of weak international releases over the past week.
There were no announcements on economic officials in comments from President-elect Obama on Friday. Markets will be sensitive to any currency and trade policy comments from Obama with some US currency support if there are any hints over a strong dollar policy. In contrast, evidence of a tough policy on trade would tend to undermine the US currency.
The dollar found support below 97.50 on Friday, but was unable to sustain a move above 98.50 as US economic fears persisted.
Sterling
The UK currency found support below the 1.56 level against the dollar on Friday, but hit resistance above 1.58. Although Sterling found support close to record lows around 0.82 against the Euro, the UK currency still suffered a sharp decline over the week as a whole following the interest rate cut.
There were no economic data releases on Friday and the markets looked to digest the huge interest rate cut seen on Thursday. There will be further hopes that the cut will help stabilise conditions in the housing sector and the economy as a whole which will offer some Sterling support. Sentiment will remain very fragile, especially as the huge rate cut will destabilize expectations towards expected yields and will discourage inward investment.
Swiss Franc
The Swiss currency found support close to 1.18 against the dollar on Friday, but struggled to sustain advances while the franc fluctuated around the 1.50 level against the Euro. A small improvement in risk appetite and domestic uncertainties curbed support for franc.
There were further very cautious remarks from National Bank officials on Friday which will maintain expectations of a further underlying deterioration in the economy. The bank announced new swap facilities to improve liquidity in the money markets and the economic fears will continue to unsettle the Swiss currency.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar has been unable to regain momentum over the past 24 hours and was generally weaker with a decline to below 0.66 against the dollar. Global growth fears and equity market declines were an important negative influence on the currency.
There will be further unease over growth prospects and there will be pressure for interest rates to fall further, but there will be some hopes that the economy can out-perform the main G7 economies.
A very tentative rally in stock markets pushed the Australian dollar back above the 0.67 level in US trading.
