| 7/1/2008
2:36 PM: EUR/$..1.5786 $/JPY..105.86 GBP/$..1.9934
$/CHF..1.0185 AUD/$..0.9526 $/CAD..1.0214
USD Firms on ISM
The greenback recovered against the majors in
the Tuesday session following sharply better than
expected US manufacturing data, pushing the currency
toward the 106-level against the yen and 1.5734
against the euro. The June manufacturing ISM report
defied consensus estimates for a deterioration
to 48.6 from 49.6 in May, instead climbing above
the key 50-level to 50.2 – which distinguishes
between expansion and contraction.
Traders will turn to the Wednesday session, with
the calendar to include the June ADP payrolls
figure, May durable goods, new goods orders and
factory orders. The June ADP payrolls figure,
often viewed as a proxy for the more closely watched
non-farm payrolls, is estimated to decline by
20k, versus a 40k increase in the previous month.
Meanwhile, the revised May durable goods orders
figure is seen unchanged with a flat reading and
factory orders are seen declining to 0.4% for
May versus 1.1% previously.
Euro Consolidates
The euro was initially higher following better
than expected economic reports from Germany, edging
up to a session high at 1.5825. Germany’s
data included sharply better than forecast retail
sales reports, up 1.3% in May versus a 0.6% decline
in April and up 0.7% versus a 0.2% drop from the
previous year. The June unemployment rate also
unexpectedly drifted lower, easing to 7.8% compared
with 7.9% from May while the unemployment change
declined to -38k from -4k previously.
Traders will focus closely on the ECB’s
monetary policy deliberation, with the decision
slated for release early Thursday morning. Analysts
are expecting a 25-basis point increase to 4.25%.
Given the steep increases in food and energy prices,
inflation in the Eurozone has reached its highest
level in 11-years, rising at 4% a year. Recall
that in the previous post-meeting press conference,
ECB President Trichet suggested that the Bank
will likely hike rates at the July meeting. Given
the ECB’s mandate to maintain price stability
and keeping inflation rates of below, but close
to 2% over the medium term, with recent data revealing
prices increasing at a record pace, markets will
pay close attention to comments from Trichet to
gauge both the likelihood and scope for any further
monetary policy tightening over the remainder
of the year. Any hints that additional ‘vigilance’
over inflation is necessary will likely fuel expectations
for more rate hikes to come, triggering fresh
demand for the single currency.
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