Expert Analysis of Today's Market

• The dollar rose on Thursday, erasing earlier losses against the euro, after the ISM non-manufacturing business index in June beat market forcasts. The European Central Bank held its key interest rate steady at 4.0% but did not signal it will increase rates next month, while the Bank of England raised rates to 5.75%. The market is awaiting tomorrow’s important US employment report.


• After testing support from the lower band in the bull channel, the USD/JPY is resuming its uptrend. The dynamic for carry-trades is still intact. Yield spreads against the yen are wide and risk appetites remain strong. We buy 1 unit of the USD/JPY and 1 unit of the USD/CAD.

Financial and Economic News and Comments

US & Canada

• The ISM non-manufacturing business index rose to a stronger-than-expected 60.7 in June from 59.7 in May, the strongest reading in 14 months, the Institute for Supply Management reported. New orders edged lower to 56.9 as employment rose to 55, the highest level in a year. The price index fell to 65.5. The June strong reading indicates continued strong growth for the US service sector.


• ADP’s forecast of private employment growth for June showed a stronger-than-expected gain of 150K. This indicates a slight pick up in private jobs growth from last month; thus, making a non-farm payroll gain of 160K likely tomorrow. If the employment report is strong tomorrow, the dollar will rise.


• US jobless claims increased by 2,000 to 318,000 in the week ended June 30, the Labor Department said. The 4-week average rose by 1,750 to 318,500, a 2-month high. Continuing claims rose to a higher-than-forecast 2.569 million in the week ended June 23, the latest week for which such data are available.

Europe

• The European Central Bank kept its key interest rate unchanged as expected at 4.0% but sounded less hawkish than expected. ECB President Jean-Claude Trichet said “our monetary policy is still on the accommodative side, with overall financing conditions favourable, money and credit growth vigorous, and liquidity in the euro area ample. Looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.” He did not use the word vigilance, a codeword for interest-rate hikes.


• The Bank of England, as expected, raised its benchmark interest rate by 25 basis points to 5.75%, the highest since April 2001. Inflation has been above the BOE’s 2% target for more than a year.

Asia-Pacific

• Japan’s index of leading economic indicators rose to a preliminary 30.0 in May from 18.2 in April, staying below the key 50.0 level for the seventh consecutive month, data from the Cabinet Office showed.

FX Strategy Update