Mid-Day Report: Dollar Weakens Further after Poor Job Data

Dollar's retreat extends further today in early US session after release of poor employment data. ADP employment report showed the job markets in the non-agricultural private sector shrank -693k in Dec, much worse than expectation of -450k and being the largest contraction since records begain in 2001. Challenger report showed US planned job cuts jumed a 274.5% comparing to a year ago. These two reports raise concern that Friday's non-farm payroll report, which is expected to show -500k contraction, will even be worse.

Released earlier, Germany's unemployment rose for the first time since Jan 2006 with the number of unemployed people increased by 18K in December, compared with market expectation of 10 K and a revised job addition of 4K in November. Unemployment rate remained at 7.6% for the 4th straight month (consensus: 7.5%, November: 7.6% revised). In the Eurozone, November's PPI slowed to 3.3% yoy, lower than 4.3% as economists forecast and 6.3% in October. On monthly basis, PPI fell 1.9% in November, the sharpest drop since the gauge began in 1981, due to rapid decline in prices in energy, non-durable goods as well as intermediate goods.

Earlier in Asian session, New Zealand's trade deficit narrowed to NZD 520M in November, better than consensus of NZD 775 M and the revised NZD996M in October, because growth in imports (+5.2% yoy) dropped more rapidly than exports (+9.4% yoy) due to depreciation in NZD. In nominal terms, imports and exports came in at NZD 4.21B (consensus: NZD 4.54B, October: NZD 4.82B) and NZD 3.69B (consensus: NZD 3.71B, October: NZD 3.83B), respectively.

In Australia, retail sales showed improvement and rose 0.4% mom in November after RBA's rate cuts and decline in commodity prices. The better-than-expected reading (consensus: -0.4%, October: 1%) was brought by increase in food spending which added 0.7% during the month. However, other components such as sales at department stores and spending on clothing dropped.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4618; (P) 1.4804; (R1) 1.5106; More

GBP/USD's rise from 1.4350 extends further to as high as 1.5129 and at this point, intraday bias remains on the upside as long as 1.4805 minor support holds. Nevertheless, current rally is expected to be limited below 1.5722 resistance and bring resumption of medium term down trend. Below 1.4805 will flip intraday bias back to the downside for retesting 1.4350 low.

In the bigger picture, interpretations of the fall from 2.0158 is that first wave has completed at 1.7445, second at 1.8668, third at 1.4557 and fourth wave consolidation should have completed at 1.5722. The current fall from 1.5722 might represent the last leg in this five wave sequence and is targeting mentioned 1.3680 (50% projection of 1.8668 to 1.4557 from 1.5722 at 1.3667). On the upside, though, break of 1.5227 resistance will be the first alert that such medium term fall from 2.0158 has completed and a medium term bottom is formed. Some large scale rebound should be seen in such case.

Forex News Digest

• ADP Report Says 693k U.S. Private Jobs Lost in December
• Nearly 700k U.S. Jobs Disappeared in December, ADP Survey Says
• Economic Downturn Finally Affecting the German Labour Market
• U.S. Planned Job Cuts Nearly Triple From Last Year, Says Challenger
• Euro Zone PPI Surprises to the Downside in November
• German Jobless Rate Unexpectedly Rises to 7.6% in December
• Euro Advances on Speculation ECB Won't Cut Rates as Deep as U.S., Japan
• Fed Revives Discussion of Inflation Target to Counter Risk of Price Slide
• Dollar May Rise 9.2 Percent to 102.51 Yen This Quarter, Bank of Tokyo Says
• U.K. Pound Declines Against Euro as Traders Judge Two-Day Gain Excessive
• UBS Says Parity Between Euro and Pound Would Represent a 'Clear Overshot'
• Chancellor Darling Warns That U.K. 'Far From Through' Recession, FT Says

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