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8:30 AM May Non farm payrolls (exp 58,000, prev 43,000) May Unemployment Rate (exp 6.1%, prev 6.0%) May Average Hourly Earnings (exp 0.3%, prev 0.1%)
Euro is trading about half a cent off from its latest 17-month high of 94.85 cents, after Germany's seasonally adjusted unemployment rose by 60,000to 4.042 million while the unemployment increased to 9.7% from April's 9.6%. The Chief of the Labor Office stated that the employment outlook has not yet bottomed out.
Also pressuring the euro is France's releases of its April budget deficit numbers showing a rise in the imbalance to 32.25 bln euros from 26.09 bln a year ago. The ministry reported the figures were a result of a 1.9% fall in tax receipts. Just yesterday, French Fin Min Mer caused some controversy after saying the budget deficit would be higher than that estimated by the previous government. France has been amid four Eurozone nations criticized for its fiscal laxity, which is causing no reduction in its deficit/GDP ratio as required under the Eurozone stability pact. The Finance Ministry later clarified Minister Mer's comments on the deficit, asserting that France respected the EU stability pact's 3% deficit/GDP limit.
As the euro attempts to test the 95-cent level, many observers, several of them European officials start to question whether the rapid rise in the currency--8%in just over 2 months--might be hampering exports. So far, only France Finance Minister Mer and EU Monetary Commissioner Mer have hinted that a rapid rise might be undesirable for the region's exports, which have been the primary source. Both in Q1 of this year and Q4 of last year, exports were the main contributor to GDP. Surely, most European officials, mainly politicians and some of them central bankers are aware of the negative effect of a rapid rise in the currency but they have to exercise extreme care in expressing these dangers so that they will not risk another decline in the currency. A German think tank has stated that the risks to exports would start once EURUSD exceeds 95. The Eurozone current account surplus has been positive since August of last year, with the exception of January.
Cable regained the $1.46 figure after UK PMI Services Survey rose to 56.7 in May, hitting a 15-month, beating the 55 forecast and rising from April's 54.5. Cable is trading in the middle of its 3-week range $1.45-1.48 range facing resistance at 1.4635-40, followed by 1.4680. Support stands at 1.4575-80, 1.4535-40 and by 1.45.
Japan's Q1 GDP figures showed the first expansion in four quarters after Jan-Mar GDP grew 1.4% q/q or 5.7% y/y. It was the also the largest rise since Q1 2000. This means that Japan's Q1 GDP outpaced US Q1 GDP of 5.6%. But the two economies emerged different downturns. While the US Q1 GDP followed a shallow downturn in Q4, Japan's growth in Q1 followed a full year of negative growth, which included a depreciating yen that thus, made it possible for an exports led recovery to carry most of the recovery in the quarter. Japanese exports rose 33% in Q1 from Q4, contributing to a 0.7% rise in Q1 growth. But it is widely expected that such export-led strength will wane by this summer, as the eyen has already gained over 7.5% against the dollar since April. In addition, the preliminary Q1 numbers face the possibility of a subsequent revision, and Japan's large banks are suffering severe loan losses, after taking as much as $217 billion in bad loan charges. It is also worth noting that Japan's fiscal year growth ending in March fell 1.3%, posting its largest contraction ever.
Japan Finance Minister Shiokawa called for new JGB issuance in next fiscal year to be kept near 3 trillion yen, aiming to keep general spending at or below the current fiscal year's level. His Prime Minister Koizumi added that tax reform should not depend on JGB issuance and that it must go hand in hand with spending reforms. USD/JPY is hovering quietly near 124.30s finding interim support at 124.10--trend line support on the hourly chart extending from 123.28, thru 124.15 and 124.03. Subsequent support seen at 124 backed by 123.70, which is the trend line support extending from the 122.82 low thru 123.28. Resistance starts at 124.50 followed by 124.70 ands 125.20. The damage from yesterday's bloodshed in the US equities is spilling over onto global markets. The Nikkei-225 fell 1.6% to 11, 438 pts, posting its 4th consecutive daily decline. The FTSE-100 Index is joining its US counterparts (NASDAQ and S&P500) at 8-month lows, tumbling over 1.5%, hit by fresh declines in technology, media and telecom (TMT) shares. The latest bloodshed in US equities came as a result of disappointing revenue forecast from Intel yesterday. Besides, accounting improprieties by US corporations continue to cast a stark shadow on the viability of investing in the US, and are presenting a new "structural" problem into corporate America, thus, serving to destabilize the dollar. Although previously the greenback had shrugged the long standing and swelling US trade deficit, the US currency's seen at present is being felt by each and every negative element to the extent that it is shrugging strong economic data. A worsening in corporate America, escalating violence in the Middle East and lingering uncertainty between nuclear-powered Pakistan and India is also dampening confidence in global equities. And the already weakening dollar is the prime victim of these geopolitical and US specific uncertainties. Whether the NASDAQ and the S&P500 have to simply test their 8-month lows or breach through them to start rallying again remains the question posed by many technical and analysts and market strategists. It is not certain whether forex market activity will be relatively quiet over the next 2 hours as England will play Argentina in the crucial World Cup soccer game between the two arch rivals. In England, home to the largest and busiest Forex market in the world, it promises to be amid the longest lunch hours of all time This morning's US jobs report is not likely to carry the strength of the economic data seen earlier in the week. The increase in payrolls will likely be shadowed by the expected increase in the unemployment rate to 6.1%--would be the highest level since July 1994. A downward report in April payrolls will also help erase any positive sentiment gained from yesterday's weekly jobless claims which fell to the lowest level in 5 weeks.