Expert Analysis of Today's Market

• In NY trading Friday the dollar was higher against the yen but lower against most major currencies despite a strong US employment report. The yen dropped against most key currencies as large negative interest-rate differentials versus other countries prompted Japanese investors to buy assets abroad. Sterling was close to a 26-year high against the dollar but fell against the euro. The Canadian dollar rose on stronger-than-expected employment growth in June.


• The EUR/USD rose today, staying close to the late-April high of 1.3677, which is now important resistance. We expect this resistance to hold as the pair is overbought and the US economy is accelerating. The employment report today and strong ISM reports for manufacturing and services earlier this week indicate that the US economy has emerged from its slow growth and regained its strong forward momentum. We expect Q2 GDP growth in the 3.5% range.

Financial and Economic News and Comments

US & Canada

• US non-farm payrolls rose 132K in June, after swelling a revised 190K in May and a revised 122K in April, the Labor Department said. The consensus expected a gain of 125K. Previous reports showed job growth of just 157K in May and 80K in April. Monthly job growth has averaged a robust 145K so far this year.

• The US unemployment rate was unchanged in June at 4.5%. Average hourly earnings rose $0.06, or 0.3%, to $17.38. Earnings have declined to a 3.9% y/y rate from a 4.3% y/y high in December. The average work week was up 0.1 hour at 33.9 hours. The unemployment rate usually rises ahead of a recession so the stable unemployment rate indicates a low chance of a recession.

• Federal Reserve Bank of San Francisco President Janet Yellen said keeping interest rates unchanged is the optimal way to achieve faster growth and slower inflation in the US economy. “The virtues of this path are that it avoids exposing the economy to unnecessary risk of a downturn while, at the same time, it is likely to produce enough slack in goods and labor markets to relieve inflationary pressures,” Yellen said.


• Canada’s employment rose a stronger-than-expected 34,800 jobs in June and the unemployment rate stayed at 6.1%, a 33-year low for a fifth month, increasing speculations that the Bank of Canada will raise interest rates next week.

Europe

• German manufacturing orders rose a stronger-than-forecast 3.2% m/m and 7.5% y/y in May, led by foreign demand for investment and consumer goods, the Economy and Technology Ministry said. Foreign orders rose 4.4% m/m and domestic orders increased 2.2% m/m in May.


• According to the OECD’s composite leading indicators for May, “moderate economic expansion will continue” in the G7 economies, while steady growth is likely in the largest emerging economies. In March, the leading indicators indicated a modest slowdown. Since then, prospects have improved for all the G7 economies except Italy and to some extent Germany.


• UK factory production rose 0.4% m/m and 1.0% y/y to the highest level in almost six years in May. The manufacturing index rose to 103.1, the highest since August 2001, from 102.8 in April, the Office for National Statistics said.

Asia-Pacific

• Bank of Japan Governor Toshihiko Fukui said movements in consumer prices will hover near 0% in the short term. The Bank of Japan is widely expected to keep its benchmark interest-rate unchanged when it meets July 11-12.

FX Strategy Update