USD Surges as US Employers Cut Less Jobs in May

• USD: Higher, supported by better than expected US nonfarm payroll, spike in bond yields
• JPY: Lower, pressured by improving risk appetite as US employers cut fewer jobs last month
• EUR: Lower, ECB's Hurley says the recession will last for another year/ ECB undecided if rate at their lows
• GBP: Lower, output prices rise, UK Brown reshuffles cabinet amid calls for his resignation
• CAD and AUD: AUD mixed & CAD lower, risk appetite improves, Canada's unemployment rises

Overview

USD traded sharply higher in reaction to the US May unemployment report. May nonfarm payrolls were much better than expected rising by just 345K. The trade had expected the nonfarm payrolls to rise by 520K. May unemployment rate rose to 9.4%. The trade expected the May unemployment rate to rise 9.2%. The US economy has shed over 6 mln jobs since the recession began in 2007 but the May unemployment report suggests that US jobs destruction is nearing an end. The USD initially weakened after the release of the unemployment report as the better than expected nonfarm payroll is a positive for risk appetite and suggests that the rate of contraction in the US economy is slowing. However, the sharp rise in the unemployment rate means that the US economy is still losing jobs at a rapid rate. This means that the anticipated US economic rebound in the second half of 2009 will be weak. The USD rallied to a three week high versus the JPY in reaction to today's report that US employers cut fewer jobs than expected last month. Canada's unemployment rate was also released today. Canada's unemployment rate rose 0.4% to 8.4% with 42K jobs lost. The CAD weakened in reaction to today's report that Canadian employers shed more jobs in May than had been forecast.

The outlook for the dollar is mixed as to today's surprise nonfarm payroll report fuels equity market gains and improving risk appetite. The report also sparked a spike in interest rates. US two-year note yields are at the highest level in six months. It's unclear if the rise in US interest rates will attract support for the dollar or generate concern that rising rates will limit the US economic rebound. Either way today's US unemployment report suggests that the anticipated US economic rebound will be weak. Morgan Stanley analysts forecast weaker dollar because of concern about US budget deficit. Some may argue that improving US economic outlook and the rise in US bond yields will help the US attract demand to fund the deficit which would reduce USD downside risk.

Upcoming US data:

Next week's US economic calendar includes the June 9th release of April wholesale sales expected at -1% compared to -2.4% last month. On June 10th April trade balance will be released expected at -29.00 bln compared to -27.5 bln last month. Also on June 10th, the May Treasury budget will be released expected at -195 bln compared to -165.93 bln last month. On June 11th, initial jobless claims will be released for the week ending in 6/06 expected to fall to 610 K from 621K last week. May retail sales and business inventories will also be released on June 11th. Retail sales are expected to rise 0.3% compared to 0.4% last month. Business inventories are expected at -0.8% compared to -1% last month. On June 12th, June University of Michigan consumer sentiment is due for release expected at 70 compared to 68.7 last month.

JPY

JPY traded sharply lower pressured by report of better than expected US nonfarm payrolls for May. Today's report that US employers shed less jobs than had been expected in May sparked demand for equities and is a positive for risk appetite. The report also sent US bond yields to a new six-month high. The combination of improving risk sentiment and rising US bond yields pressured JPY. JPY was also pressured by technical selling as USD/JPY traded above the 200 day moving average at 96.85. The break of this level suggests further downside potential for the JPY. JPY weakened in cross trade pressured by improving risk appetite as today's US employment report encourages investors to seek higher yields. A report that the BOJ is considering upgrading its economic assessment for Japan's economy had limited impact on the trade.

Next week's Japanese economic calendar includes the June 9th release of April leading indicators expected at -12 compared to -16.4% last month. On June 10th, April machinery orders will be released expected at 3% compared to -1.3% last month. May GCPI will also be released on June 10th, expected at -0.2% compared to -0.4% last month. On June 11th, Q1 GDP will be released expected at -4%. On June 12th, revised April industrial output will be released expected at 5% compared to 1.6% last month.

Key technical levels to watch in USD/JPY include support at 96.56 the June 5th low with resistance at 99.75 the April 17th high.

EUR

EUR traded sharply lower pressured by report of better than expected US May nonfarm payrolls report. The US May nonfarm payrolls report sent US bond yields to six-month high. The rising yields attracted demand for USD, pressured commodity prices and limited upside rise in global equities. The rise in US bond yields took some of the shine off the initial improvement in risk appetite which emerged after the release of today's US employment report. EUR traded in a volatile range initially firming after the employment report and then turned sharply lower. Comments from the ECB's Hurley may have also contributed to negative price action in the EUR. Hurley said that EU recession will last another year and that the ECB has not decided if interest rates are at their lowest levels. Hurley's comments were counterbalanced by a statement from ECB President Trichet that he sees improving outlook in the EU and the ECB will unwind easing measures quickly when the economy recovers. If today's US NFP report is confirmation that the US recession is ending, the EUR may be too richly priced above 1.4000 as growth and yield differential moves in favor of the USD.

Next week's EU economic calendar includes the June 9th release of April German trade balance expected at 9.2 bln compared to 8.9 bln month. On June 10th, German may HICP will be released expected unchanged at 0.1%. On June 12th, EU April industrial production will be released expected at -2.2% compared to -2% last month.

The technical outlook for the EUR is mixed. Expect EUR support at 1.3935 the May 29th low with resistance at 1.4267 the June 5th high. EUR needs to hold above the May 29th low of 1.3935 level to maintain a positive upside technical bias.

GBP

GBP traded near a one-month low pressured by increased political turmoil in the UK and by report of better than expected US May nonfarm payroll report. UK PM Brown reshuffled his cabinet today amid continued calls for his resignation. Two more members of cabinet resigned and called for Brown to resign as well. The fact that US employers cut fewer jobs in May sent US bond yields higher and encouraged speculation that the US recession has ended. The GBP downside was limited by report of higher output prices. UK May output prices rose 0.4%. Rising UK output prices suggest that Bank of England quantitative ease may be helping to boost prices. GBP is correcting from a seven-month high which took the GBP above 1.6600 to below 1.6000 on Friday. Political turmoil in the UK will compete with improving economic outlook for GBP price direction.

Next week's UK economic calendar includes the June 9th release of May BRC retail sales expected at 3% compared to 4.6% last month. On June 10th, April industrial production will be released expected at -0.4% compared to -0.6% last month. UK April trade balance will also be released on June 10th expected at -6.750 bln.

The technical outlook for GBP is mixed. A modest period of consolidation and downside technical correction is expected for GBP. Expect near-term support at 1.5775 the May 26th low with resistance at 1.6245 the June 5th high.

CAD

CAD traded lower pressured by weaker crude prices and report of weaker than expected Canadian employment data. Canada's May unemployment rate rose 0.4% to 8.4% with 42K jobs lost. Trade had expected Canada's unemployment rate to rise to 8.2% and to have lost 5K jobs. CAD was also pressured by today's report of better than expected US nonfarm payroll for May. The report generated speculation that the US recession is ending and sent US bond yields sharply higher. The rise in US bond yields contributed to today's weaker crude and commodity price trade. CAD price direction remains closely correlated to the price of crude.

Thursday, The Bank of Canada announced that it was holding rate policy steady at 0.25%. In the statement accompanying the Bank of Canada rate decision, BOC officials said that risks are roughly balanced and inflation risk is slightly tipped to the downside. BOC also said that the unprecedented rapid rise in the CAD could fully offset improvement in the financial markets and prolong the recession. The BOC did not adopt quantitative ease. Today's Canadian unemployment report may revive speculation that the Bank of Canada will reconsider adopting quantitative ease.

Next week's Canadian economic calendar includes the June 10th release of April trade balance expected at 1.6 bln compared to 1.1 bln last month.

The technical outlook for CAD is mixed. Look for near-term support at 1.0862 the June 5th low with resistance at 1.1160 the June 4th high and 1.1305 the April 22nd high.

AUD

AUD traded mixed to lower reversing overseas gains as the trade shifts focus from improving risk sentiment to rising US bond yields. Today's report that US employers shed less jobs in May sent US bond yields to a six-month high. The rise in bond yields may reduce demand for commodities and the CRB weakened. The rise in bond yields also dampened improvement in risk sentiment which had emerged after the release of the US May employment report. The US equity market struggled to hold early gains after testing a new high for 2009. AUD downside was limited by a 1% gain in cross trade to JPY. The JPY was pressured by rising US bond yields and investor demand for riskier assets like the AUD as the US labor market stabilizes. AUD extended a sharp downside correction from eight-month highs established above 8200 on Wednesday. AUD was also pressured Thursday by comments from the RBA Governor Stevens. Stevens said there is room to cut interest rates because CAPEX spending and inflation continue to decline. The dovish nature of Stevens comments suggest that the RBA may be trying to talk the AUD lower because the recent rapid surge of AUD will contribute to lower inflation and could reduce demand for Australian exports. Tuesday, the RBA elected to hold rate policy at 3%. The AUD downside should be limited by RBA yield advantage and improving domestic economic outlook in Australia. AUD strength may emerge as the biggest risk to be Australian economy as global economy stabilizes. Look for two-way trade in the AUD with price direction tied to risk sentiment and equity markets.

Next week's Australian economic calendar includes the June 8th release of May ANZ job ads expected at -3% compared -7.5% last month. On June 9th, April housing finance will be released expected at 1.7% compared to 4.9% last month. On June 11th, May employment and employment growth will be released. The unemployment rate is expected to rise to 5.5% from 5.4% last month and employment growth is expected to fall by 15 K compared to 27K last month.

The technical outlook for the AUD is mixed on today's break of 8000. The break appears to be corrective in nature and expect buyers to emerge on the breaks. Look for AUD support at 7885 the June 4th low with resistance at 8123 the June 5th high.

By Michael J. Malpede

Easy Forex

Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst.

Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.