Expert Analysis of Today's Market

• The dollar rose against its rivals Friday on mixed US employment data and further signs of a global growth recession. US payrolls fell less than expected, but the unemployment rate increased to the highest level in four years. The PMI data for European, Australian and Chinese manufacturing sectors showed contracting growth. The GBP/USD fell on new signs of a UK recession as UK manufacturing shrank by the most in a decade. The AUD/USD declined after Australia’s manufacturing contracted in July. The USD/CAD was modestly higher, unable to penetrate the 1.03 resistance for a fourth day. The raw material rich Canadian and Australian economies are hurt by the slowing commodity boom. The dollar-block currencies were pressured by slowing manufacturing growth as the JP Morgan’s global manufacturing PMI fell to a 5-year low. The yen were modestly higher as US stocks fell and investors reduced high-yielding assets financed in yen.


• The EUR/USD initially fell on stronger-than-expected US data but pared losses on rising oil prices. The euro weakened as German retail sales dropped more than expected in June, undermining the case for the European Central Bank to raise interest rates again this year. The pair is below the 1.56 resistance, likely to trade in the 1.54-1.56 area next week. The short-term trend is down and we expect a test of the significant 1.54 support. We also expect further deterioration in both European and US fundamentals, but we think the euro will be more vulnerable to bad news.

Financial and Economic News and Comments

US & Canada

• US non-farm payrolls fell a less-than-expected 51,000 in July, following a decline of an upwardly revised 51,000 in June, the Labor Department said. The unemployment rate rose to 5.7% in July, the highest since March 2004, from 5.5% in June. Overall, the better-than-expected payrolls were counterbalanced by the higher-than-expected unemployment rate.


• The US ISM PMI manufacturing fell slightly to 50.0 in July from 50.2 in June. Prices paid eased lower to 88.5 in July from 91.5 in June, while the employment reading jumped to 51.9 from 43.7. New orders signaled more trouble for the sector as they fell to 45.0 in July from 49.6 in June.


• Total construction spending continued its steady decline in June as housing spending fell to its lowest level in almost seven years, although business construction rose to an all-time high, the Commerce Department said.


• JP Morgan’s global manufacturing PMI fell to 49.0 in July, a 5-year low.

Europe

• The German’s Federal Statistics Office said retail sales fell a stronger-than-expected 1.4% m/m in June after increasing 0.5% m/m in May.


• UK manufacturing activity fell for a third straight month in July and at the sharpest rate in almost a decade as firms struggled with record price pressures and a slump in orders. The Chartered Institute of Purchasing and Supply purchasing managers’ index fell to 44.3 in July from 45.9 in June, the weakest reading since December 1998.


• The EMU manufacturing PMI fell to 47.4 in July, the lowest level since June 2003.

Asia-Pacific

• The TD Securities-Melbourne Institute monthly inflation gauge rose 0.4% m/m in July, after increasing 0.5% m/m in June. Yet, annual inflation slowed to 4.6% y/y in July, from a record high of 4.8% y/y in June.


• Manufacturing in China contracted for the first time since a survey began in 2005 as export demand faltered and factories closed to clear the air before the Olympic Games. The PMI fell to 48.4 in July from 52.0 in June, the China Federation of Logistics and Purchasing said.

FX Strategy Update