FOREX TRADING

USD Higher, Jobless Claims Post an Unexpected Rise

• USD: Higher, jobless claims rise, productivity beats expectations, labor costs fall more than expected
• JPY: Higher, supported by a spike in risk aversion and EU debt troubles
• EUR: Lower, credit default spreads widen in Europe, German industrial orders drop, ECB on hold
• GBP: Lower, BOE to pause asset purchases, left open for future QE if economy deteriorates
• CAD and AUD: AUD & CAD lower, Australian retail sales decline, commodity prices slide

Overview

USD traded higher Thursday supported by EU sovereign debt risk, weaker equities and declining commodity prices. Credit default swaps widened to a record level in Portugal and continued to widen in Greece and Spain. It’s becoming more expensive to buy protection against debt defaults in Greece, Spain and Portugal. European sovereign debt risk is the main focus of FX trade. The ECB elected to hold monetary policy unchanged as expected and the BOE decided to pause its asset purchase program. In the press conference following the ECB meeting ECB President Trichet said the interest rate level remains appropriate, inflation outlook risks broadly balanced, and EU economy to grow at a moderate pace. Trichet also said that high debt puts burden on monetary policy and he thinks Greece is moving in the right direction on its deficit reduction plans.Trichet also warned that all EU countries must respect the EMU growth pact. The EMU growth pact includes restrictions on GDP debt ratio for countries that join the EUR traded to the day’s lows as Trichet discussed European fiscal imbalances. EU debt troubles may delay ECB exit plans. The BOE left the door open for future expansion of quantitative ease if economic conditions deteriorate. Commodity currencies traded lower pressured by a spike in risk aversion as global equity markets decline pressured by global debt worries. AUD weakened in reaction to report of weaker than expected Australian retail sales and a sharp rise in New Zealand’s unemployment rate. JPY traded  sharply higher supported by safe haven demand sparked by a spike in risk aversion. US economic data was mixed with jobless claims posting an unexpected rise. Unit labor costs declined more than expected and productivity came in stronger than expected. USD remained higher after the release of the jobless claims and productivity data. Factory orders were reported slightly higher than expected. Focus turns to Friday’s release of US January unemployment and nonfarm payrolls. USD headline unemployment is expected to post a 0.1% rise to 10.1% and nonfarm may turn slightly positive. (more…)