Friday, August 5, 2011

Market Morning Overview - August 5, 2011

Previous session overview
The euro recovered partly from an earlier plunge by early afternoon in Asia, though a sell-off in riskier assets in New York and London into the session had investors still on edge ahead of Friday's key nonfarm payrolls report in the U.S. 

After selling broadly late in New York and early in Asia, the euro recovered some of its lost footing in recent action against both the dollar and the Swiss franc. After the Dow Jones Industrial Average lost more than 500 points Thursday, the euro had earlier pushed to a fresh all-time low against the Swiss franc and its lowest point against the dollar since July 18. 

Partly helping the bounce-back was a retracement for stocks in Hong Kong and Japan, with those markets coming off their session lows. Traders said flows were subdued ahead of Friday's nonfarm payrolls report. 

At 0450 GMT, the euro was at USD1.4122, up from an earlier low of USD1.4055 and from USD1.4100 in New York. The common currency was at JPY111.05 from JPY111.27.

The dollar was at JPY78.70 from JPY78.90, after a sudden, brief jump to an intraday high at JPY79.42 at 0440 GMT. Traders said the move was likely due to large trades being executed, and was likely not intervention. 

The ICE Dollar Index was at 75.141 from 75.252. 

The Australian dollar was sharply weaker late Friday caught up in a global market maelstrom fanned by a massive fall in U.S. stocks Thursday amid fears the U.S. economy is slowing quickly. At 0630 GMT, the Australian dollar was at USD1.0447, down from USD1.0665 late Thursday and off a 30-year high of USD1.1080 last week. Against the Japanese yen, the Australian dollar was at JPY82.06, down from JPY84.65.
Market expectation
Major currency pairs are little changed Friday after some wild movements in the prior session when the U.S. dollar and the Swiss franc drew heavy safe-haven demand. That had knocked the euro and other risk-sensitive currencies lower. 

The euro zone's comparatively higher interest rates have been the sole incentive for investors to hold the single currency particularly as fears grow that the problems that struck Greece, Ireland and Portugal could soon spread to Spain and Italy. As a result, the perception that the European Central Bank could be less aggressive in tightening monetary policy hit the euro hard. 

The EURUSD is at USD1.4096 from an earlier low of USD1.4055. The pair may rise to USD1.4150 later in the day, dealers said.

European stocks are expected to open sharply lower Friday following the heavy selloff in the U.S. and Asia, as investors shun riskier assets amid growing concerns about euro-zone sovereign debt and the U.S. recovery, and ahead of the release of non farm payrolls.