Afternoon Forex Overview

For the first time in many months, the dollar benefited from positive U.S. data Friday against both the euro and yen.

U.S. job losses softened markedly last month in one of the strongest signals yet that the severe recession may be winding down. Nonfarm payrolls slid 345,000 in May, the U.S. Labor Department reported, well below the 525,000 decline economists expected.

Initially, the euro spiked against the U.S. unit to a session high, as traders plowed into riskier positions on the promising economic data. However, the euro then suffered from a sharp reversal as the currency market considered the strong data could mean the U.S. fed funds rate may be back on its way up.

Low rates and other monetary easing measures in the U.S. have undercut investor appetite for dollars, in favor of the euro and commodity-liked currencies.

But the nonfarm payrolls figure sent the front end of the Treasury market higher, suggesting investors are beginning to think about an increase in the fed funds rate after more than a year of aggressive monetary easing by U.S. policy makers.

The euro fell to a one-week low of USD1.4013, after rising as high as USD1.4269 immediately after the report. Friday morning in New York, the euro was at USD1.4043 from USD1.4182 late Thursday. The dollar was at JPY97.96 from JPY96.80. The euro was at JPY137.58 from JPY137.24, and the U.K. pound was at USD1.6033 from USD1.6186. The dollar was at CHF1.0820 from CHF1.0700 Thursday.

Market expectation

EURJPY Asian base eroded and stops below duly triggered as the cross loses other 50-points down to current levels. Support noted at JPY135.60/30, though orders still said few and far between as many players take a back seat after recent volatility.

Pound breaks under USD1.6000 on the second attempt, the first challenge meeting a regular bid at this level that soaked up several hits before the bounce took it back to the USD1.6030 area. Rate touches lows at USD1.5984, with earlier reports noting demand placed to USD1.5980. A break here can open a deeper move to USD1.5950 ahead of USD1.5920 and near term tech target area around USD1.5885/80. Resistance remains at USD1.6030.

But analysts say they worrying that the ECB forecasts are based on the assumption that the euro will be trading at USD1.33 in 2009 and USD1.34 in 2010.

Meanwhile, ongoing fears over Latvia's economy continue to pressure local emerging market currencies and the Swedish krona.

Dukascopy Swiss FX Group

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