EUR/USD
The Euro maintained a firm tone ahead of the US payroll data on Friday with a challenge on resistance levels above 1.35. There were fresh reports that the ECB and potentially other European central banks would provide up to EUR200bn in loans to the IMF with the funds then used to support the peripheral Euro-zone economies. There was a sharp decline in bond yields during the day as Italian and Spanish markets rallied and this also supported Euro sentiment.
The headline US employment data was in line with market expectations with a 120,000 increase in non-farm payrolls for November after a revised 100,000 increase the previous month. The main surprise was the unemployment rate which declined to 8.6% for the month from 9.0% previously, although a significant proportion of this reflected a decline in the labour force which is not a positive sign. Nevertheless, the data will maintain a slightly more optimistic mood surrounding the economy.
Attention quickly reverted back to the Euro-zone area and there was underlying caution towards risk appetite which curbed selling pressure on the dollar. There were also rumours of a Spanish credit-rating downgrade which undermined sentiment late in the European session.
There were further tensions and rumours ahead of a series of meetings over the forthcoming week, culminating in the Summit on December 9th. The Italian cabinet approved the latest round of austerity measures, boosting optimism over compliance surrounding any future fiscal deal.
German Chancellor Merkel and French president Sarkozy will meet on Monday and will look to reach a joint position. There will be plans to accelerate plans for fiscal union and there will then be the potential for increased support for monetary support. Underlying uncertainties will remain extremely high which will contribute to further volatility. The latest speculative positioning data recorded a further increase in net long dollar positions to the highest since June 2010 which will limit scope for further buying.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar found support in the 77.70 area against the yen on Friday and then pushed higher during the US session. A decline in US unemployment helped underpin confidence which also pushed the dollar to highs in the 78.10 area as US yields moved slightly higher.
Risk conditions will continue to have an important influence on yen demand and there will be reduced demand for the Japanese currency if there is a sustained improvement in risk appetite. There is still likely to be an important theme of caution, especially as there will be fears surrounding the Asian growth outlook. Market conditions remained subdued on Monday with the dollar unable to gain further buying support.
Sterling
Sterling maintained a firm tone ahead of the US employment release on Friday and pushed to a high in the 1.5720 area. There was fresh selling pressure during the New York session and renewed gains for the US currency pushed Sterling to lows just below the 1.56 level.
The UK PMI index for the construction sector declined to 52.3 for November from 53.9 the previous month which was broadly in line with market expectations. The services-sector data will be watched extremely closely on Monday and a weaker than expected reading would increase UK recession fears, especially with the Engineering Federation warning that orders were flat during the fourth quarter.
The extent of safe-haven demand will be extremely important in the short term, especially with extremely high stakes surrounding the Euro-zone outlook. Any increased confidence in measures to safe-guard the Euro area could undermine defensive support for Sterling, although high volatility is likely to be the principal feature.
Swiss franc
The dollar found support on renewed dips to the 0.91 area on Friday and rallied strongly to a peak around 0.9240 before consolidating as the Euro also weakened to lows near 1.2370.
There was further speculation over additional measures to weaken the franc and renewed talk that the National Bank could raise the minimum Euro level. Following on from the speculation that there would be a move to push interest rates negative there was renewed selling pressure on the currency as the relentless stream of rumours undermined any franc buying support. In this environment, risk conditions are having a secondary impact.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar maintained a strong tone in European trading on Friday and spiked to a high just above 1.03 against the US dollar following the US employment data. It was unable to sustain the advance and weakened back to the 1.02 area late in the US session.
The domestic data did not have a major impact as subdued readings for inflation and job ads was offset by a solid gain in corporate profits. There was some caution ahead of Tuesday’s Reserve Bank of Australia interest rate decision given the possibility of a second successive rate cut.
There was also still an underlying mood of caution surrounding the Asian economic outlook which curbed Australian dollar buying support.
