Dim Prospects for Canadian Dollar, Pound

The US dollar is stronger today against currencies like the Canadian dollar, British pound and Japanese yen, but remains more or less unchanged versus the Euro, Swiss franc.

Broadly speaking, sentiment is still supportive of a USD rebound. The ADP employment report released today showed that private sector jobs rose by 40,000 in the US in May, better than the 30,000 drop expected by most economists. In April, 13,000 jobs were added by the private sector, which was revised up from the previously reported 10,000. Although the ADP data isn’t very telling, it gives a glimpse of how the government’s monthly jobs report could turn out.

With the US non-farmpayrolls to be released this Friday, you’d better mark that on your calendar as it is one of the most anticipated events every month. The median forecast is for non-farm payrolls to fall by 60,000 in May.

The greenback is also supported for the time being by what Fed chief Bernanke said yesterday. He said the Federal Reserve is aware of the inflationary impacts of the weaker US dollar - an unusual reference to the US currency when speaking of the economy and monetary policy - and also hinted the end of the rate cut cycle.

Woes in Britain

Cracks are showing in the UK. Nationwide, Britain’s fourth-biggest mortgage lender, said consumer confidence dropped in May to the lowest level in four years. And a private survey by CIPS showed growth in services contracted for the first time since March 2003, falling to a falling of 49.8, versus a forecast reading of 50.5. The British pound will be pressured on the downside from weakening economic data as well as from rising inflation, two big areas of concern for the Bank of England as it begins its two-day meeting to set borrowing costs.

Upcoming Interest Rate Announcements

Interest rate decisions will be announced by the Bank of England and the European Central Bank Thursday, and both are expected to keep rates on hold at 5% and 4% respectively. Britain’s 5% main lending rate is the highest among the Group of Seven nations. For instant data releases and news announcements, check out the live news feed at GraceCheng.com.

Forex Trading

EUR/USD has been trading in a tight range after hitting a session low of 1.5410 yesterday, and is now hovering around 1.5450. It is likely to stay in this range till the ECB rate decision Thursday. Possible downside targets are 1.5390, 1.5360. USD/CHF also traded sideways and is now around 1.0400. Topside targets are 1.0530, 1.0590-1.0610. GBP/USD fell slightly over 100 pips today, and if the USD continues to show strength, Cable may next test 1.9500-10.

The US dollar rose for the fifth day in a row against the Canadian dollar today as traders speculate that the Bank of Canada may be forced to cut interest rates next week as the Canadian economy posted an unexpected first-quarter contraction. USD/CAD is now trading above 1.0100.

Thursday:

Australia trade balance 0130 GMT

New Zealand rate decision (rate expected to stay at 8.25%)

German factory orders 1000 GMT

Bank of England rate decision (rate expected to stay at 5%) 1100 GMT

European Central Bank rate decision (rate expected to stay at 4%) 1145 GMT

US initial jobless claims 1230 GMT

Fed’s Plosser speaks on financial stability 1600 GMT