Friday FX Brief

by: Interactive Brokers

The greenback powered its way to a four-year high against the euro as nervous dealers dealt with a flurry of stop-loss orders sending the euro down to below $1.2100 for the first time since April 2006. Ahead of a U.S. jobs report it’s impossible to say whether the spark here is in hopes of a strong reading that would imply perhaps a yield bump for the dollar or whether it’s a fear-based move that would put the dollar ahead of other currencies on a safe haven footing. Earlier data for the Canadian economy showed a strong pace of hiring in full-time positions at twice the predicted rate. That economy is going gangbusters apparently and dealers are probably twitchy ahead of the U.S. report that might drive investors further towards the dollar where growth prospects increasingly trump the perceived dangers seeping from the Eurozone.

Canadian dollar – The Canadian dollar responded by jumping to 96.57 U.S. cents of news that 24,700 additional jobs were added in May. However, the news was quickly spun into a greenback bullish story. Typically a strong Canadian report is a good harbinger of the later American version. We’ll have to wait and see whether the dollar indeed faces a double-headed coin toss as some have suggested before the data. A stronger U.S. economy and a pick up in the labor market should continue to boost its appeal, while a disappointing report would shift the emphasis back to the fear of a jobless recovery and the threat of an impending slowdown, which might also benefit the dollar in its safe haven capacity. The implication for the Canadian dollar was that it was also caught up in the backwash and fell to 95.73 cents quickly after its earlier boost.

Japanese yen –The yen benefitted from the dollar’s jump in New York after earlier weakening against both euro and dollar. At 7:40am it stood at ¥92.35 having earlier declined to ¥92.88 against the dollar. The appointment overnight of Naoto Kan as Prime Minister didn’t change the market’s bias towards a cheapening yen as a result of Mr. Kan’s earlier views that a weaker yen would be beneficial for Japanese exporters. Against the euro the yen reversed course and is trading at ¥111.75 having earlier traded at ¥113.37.

Euro – The euro continues to suffer from dropsy and has dropped almost three cents from its midweek high and is currently down on its luck at $1.2067. An earlier provisional reading of first quarter Eurozone growth showed a slightly better 0.6% pace of growth and up from 0.5% in the final three months of last year.

British pound – A Halifax housing survey confirmed an earlier in the week data series showing life is back into the nation’s home prices. The pound was bolstered by the prospect for an economic recovery and rose steadily to $1.4681. However, the dollar’s jaunt reversed that trajectory and the pound has since slumped to $1.4563.

Aussie dollar – It’s the same story for the Aussie as it is for the Canadian unit today. It’s hard to state that this is a risk off day meaning that the riskier commodity sensitive dollars are losing, but that is what the market is pricing today. Only after the jobs report will we know whether the dollar’s gains are growth led or fear based. For now investors are taking no risks and an earlier in the session gain for the Aussie to 84.77 U.S. cents has crumbled by a whole penny to 83.75 cents.