US Dollar: Time to Shift Focus to Non-Farm Payrolls (page 2 of 2)

Euro Holds Near Record Highs
The Euro is holding up well near its all time record highs as comments from ECB officials suggest that intervention risk is minimal. Although Eurogroup Junker believes that the euro is overvalued, he feels that this is more a problem with the US dollar than the euro itself. Most European officials recognize the fact that a strong currency is needed to contain inflation. With corn prices at a record high and rice prices at 20 year highs, it may just be a matter of time before we see a big jump in consumer prices. At this point, the ECB needs their currency to be strong and growth to slow in order to have any chance of bringing inflation back below their target. Eurozone PPI and GDP were right in line with expectations so there was no major reaction in the Euro. Service sector PMI and retail sales are due for release tomorrow; we expect the numbers to continue to be euro positive. Meanwhile the Swiss Franc is stronger across the board following the hottest pace of GDP growth in 2 years.

British Pound: Ready for a Big Breakout
The British pound has been consolidating for the past week and the contracting range signals that the currency is prime for a big breakout. Our technical analyst believes that the breakout will be to the upside which aligns well with today's sharp reversal in US stocks. Having been down over 200 points intraday, we may now see another 200 point rally in stocks. Over the medium term however, UK rates are still headed lower and we believe that fundamentally, weakness should still be the dominant trend in the British pound. UK economic data has been mixed with construction sector PMI falling short of expectations and manufacturing sector PMI beating them. Service sector PMI is due for release tomorrow which could be the catalyst for a break in the pound.

Yen Crosses Struggling to Recover
With the US stock market falling 450 points since last Thursday and as much as 650 points intraday, carry trades continued to struggle. CHF/JPY is the only yen cross that closed in positive territory while AUD/JPY is the day's biggest percentage loser. Finance Minister Nukaga believes that the economy is still on the path to recovery and recent data appears to suggest this possibility.