Major Catalysts To Cause Euro Breakout vs. Dollar

by: Grace Cheng posted on: July 03, 2008

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There’s no stopping the oil-buying frenzy, and no stopping the Euro upward momentum. Crude oil for August delivery rose to a record $144.32 a barrel in after-hours electronic trading on Wednesday; many shorts may have been squeezed on news that Israel may attack Iran, the second largest oil producer in OPEC, on the basis of the latter’s nuclear program (although the US government has said that scenario is unlikely). The uptrend in oil prices is suppressing dollar recovery, particularly against the Euro.

Further Euro Gains?

Speaking of the Euro, it has been a stronger winner in the currency markets, rallying to a 10-week high against the US dollar, hitting a session high of 1.5890. Even though the European Central Bank is 99.99999% guaranteed to raise its main interest rate by 25 bps to 4.25% on Thursday, and traders have known this for quite some time, that has not stopped Euro from advancing. There is a real possibility now that EUR/USD could retest its all-time high of 1.6020 Thursday on the spark of ultra-hawkish Trichet-speak or ultra-bad US non-farm payrolls numbers. If not Thursday, Friday could also be the day since liquidity in financial markets will be sapped due to the celebration of US Independence Day.

Forex trading will be muted ahead of the crucial US non-farm payrolls that is due to be released on Thursday. The national jobs report is now feared to be quite bad, judging from Wednesday’s release of the ADP private-sector jobs report which showed that 79,000 jobs were lost (-20,000 jobs expected) in June following a downwardly revised increase of 25,000 jobs in May (originally 40,000 gain). The NFP report is expected to show the sixth straight month of job losses in June, and the average consensus is for a 60,000 jobs decline. The unemployment rate is expected to tick lower to 5.4% in June from 5.5% in May, which was a near four-year high.

So folks, hang on tight while you get the non-farm payrolls release here.

Economic Calendar for Thursday:

US stock and bond markets will be closed at 1pm ET on Thursday

Australia trade balance 0130 GMT

Swiss CPI 0545 GMT

UK PMI services 0830 GMT

Eurozone retail sales 0900 GMT

ECB rate decision 1145 GMT (rate expected to increase to 4.25% from 4%)

US non-farm payrolls 1230 GMT

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