USD At Important Technical Levels Ahead Of Labor Data

The dollar traded mostly higher on Thursday ahead of Friday's important US labor data. ADP's forecast of private-sector payrolls rose less than expected. US service industries expanded for a fifth consecutive month. The S&P 500 index traded in a narrow range and increased 4.45 to 1,102.83. The dollar index is just below the important 87.50-area resistance. If this is broken, the dollar will gain significantly. The USD/JPY rose for a second day and broke the 92-area resistance, supported by Japan's political uncertainty following yesterday's PM resignation. The GBP/USD declined modestly despite the higher UK services PMI and home prices. The Australian and Canadian dollars were little changed at important technical levels.

The EUR/USD reversed earlier gains and fell on continued worries about the European banking system and weak retail sales. The pair had tested the 1.2150 area for a seventh time. In a clearly defined downtrend, the EUR/USD is likely to fall further despite being extremely oversold on most measures. However, it may not be recommended to enter short positions here as a possible short-covering rally could be very sharp. Further support is in the 1.20 area and resistance in the 1.25 area.

Financial and Economic News and Comments

US & Canada

• US private-sector payrolls rose 55,000 in May, a fourth consecutive monthly gain, after an upwardly revised 65,000 advance (vs. previously reported 32,000 increase) in April, according to estimates by Automatic Data Processing, Inc. and Macroeconomic Advisers, LLC. In the last six reports, ADP's initial numbers compared with the Labor Department's first estimate of private payrolls overstated losses by as much as 151,000 in November and underestimated gains by 199,000 in April. The June 4 employment report from the Labor Department will possibly show overall job gains approximately 525,000 for May, with the unemployment rate declining to 9.8% from April's 9.9%.

• US nonfarm productivity increased at a 2.8% q/q annualized rate in Q1 2010 (vs. preliminarily reported +3.6% q/q), less than expected, after rising at a 6.3% q/q annualized pace in Q4 2009, according to final Q1 data from the Labor Department. Q1 nonfarm productivity rose 6.1% y/y, the largest 12-month gain in nine years. Unit labor costs declined at a 1.3% q/q annualized rate in Q1 (vs. preliminarily reported -1.6% q/q) after falling at a 7.8% q/q annualized pace in Q4. Q1 unit labor costs fell 4.2% y/y.
• US initial jobless claims in the week ending May 29 fell 10,000 to 453,000 from the previous week's upwardly revised 463,000, a report from the Labor Department showed. The 4-week moving average increased 1,750 to 459,000. Continuing claims in the week ending May 22 rose 31,000 to 4,666,000 from the preceding week's upwardly revised 4,635,000. The 4-week moving average increased 9,750 to 4,654,000. The insured unemployment rate for the week ending May 22 remained at 3.6%.
• The ISM US non-manufacturing index remained at 55.4 in May, lower than expected and unchanged from April and March, indicating US service industries expanded for a fifth straight month and remained at the highest level since May 2006, data from the Institute for Supply Management showed. The index' key components were mixed in May. The business activity index rose to 61.1 from 60.3 and the employment index increased 50.4 from 49.5. The new orders index declined to 57.1 from 58.2 and the supplier deliveries index slipped to 53.0 from 53.5. The prices paid index decreased to 60.6 in May from 64.7 in April.

• US factory orders rose a marginally less-than-forecast 1.2% m/m to $420.1 billion in April, a 12th rise in 13 months, after an upwardly revised 1.7% m/m advance in March, according to figures from the Commerce Department. April factory orders climbed 19.3% y/y. Excluding transportation, factory orders declined 0.5% m/m.

Europe

• Eurozone retail sales declined 1.2% m/m in April, the third fall in four months, after an upwardly revised 0.5% m/m increase in March and a revised 0.1% m/m decline in February, data from Eurostat showed. April retail sales fell 1.5% y/y, following an upwardly revised 1.3% y/y March advance.

Asia-Pacific

• Australia's trade balance unexpectedly showed an A$134 million ($113 million) surplus in April, the first surplus in 12 months, after a revised A$2.04 billion deficit in March, figures from the Australian Bureau of Statistics showed. Exports including farm goods climbed 11.0% m/m to A$22.7 billion in April. Exports of non-farm goods jumped 18.4% m/m to A$14.8 billion, the largest increase since May 1982. Imports rose A$17 million to A$22.5 billion.
• Japan's capital spending fell a more-than-expected 11.5% y/y in Q1 2010, a 12th straight quarter of decline, after a 17.3% y/y decrease in Q4 2009, according to data from the Ministry of Finance. Capital spending excluding software declined 12.9% y/y in Q1, easing from an 18.5% y/y Q4 drop.

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