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Non-Farm Payrolls Pushes Dollar Down, Increasing Likelihood of Rate Cut

CURRENCY TRADING SUMMARY � 07 APRIL 2008 (00:30GMT)

�                U.S. Dollar Trading (USD) was weaker on Friday as a result of a worse than expected Non-Farm Payrolls data release indicating employment fell by 80,000 in March, some 30,000 less than what was forecast. February�s figures were also revised to show a loss of 76,000 jobs rather than the 63,000 it originally reported, further indicating the world�s largest economy may be slipping into recession. Further to this news, the unemployment rate rose 0.3% to 5.1% its highest level in almost 3 years fuelling thoughts the Fed may cut rates yet again as early as the end of this month. The US share market had a mixed reaction to the weak economic data with the NASDAQ rising 7.68 points (0.3%) and the Dow Jones falling -16.61 points (-0.1%). Oil prices gained US$2.40 a barrel to US$106.23. Looking ahead, consumer credit data is to be released with forecasts expected to be 5.5, a drop from February�s figure of 6.9.

�                The Euro (EURO) remained strong against the major currencies in the wake of weak economic data being released out of the U.S on Friday. The EURUSD traded at a high of 1.5775 and a low of 1.5639, before closing at 1.5718 in the New York session. Looking ahead the Industrial Output for Germany is to be released on Monday with forecasts expecting a -0.5% contraction, following a 1.8% growth in February.

�                The Japanese Yen (JPY) strengthened on the back speculation of a slowdown in the global economy, the USDJPY had a high of 102.69 and a low of 101.47, before closing at 101.76 in the New York session.

�                The Sterling (GBP) closely tracked the U.S and showed a decline against the Euro. The weak U.S is expected to hurt U.K growth which is prompting traders to add to bets that the BoE may cut rates as early as next week to help sure up the economy. The GBPUSD traded at a high of 2.0049 and a low of 1.9912, before closing out at 1.9912 in the New York session.

�                The Australian Dollar (AUD) remained strong in the face of weak Retail Sales figures being released on Friday in the Asian session, before rallying in the U.S session after the release of Non-Farm Payroll figures. Sales figures contraction of -0.1% is indicative of RBA Governor Stevens� thoughts that there is a change in demand amongst consumers. The AUDUSD traded at a high 0.9228 and a low of .9101 before closing at .9217 in the New York session. Looking ahead, Trade Balance figures are to be released during the Asian session on Monday with forecasts expected to see the deficit narrow -$2500 million, following February�s figure of -$2723 million.

�                Gold (XAU) rose on Friday following a weaker U.S economic outlook and solid oil prices. Prices rose US$8.10 an ounce (0.9%) to US$917.70.

TECHNICAL COMMENTARY                                                   

�                Euro � 1.5731

Initial support at 1.5639 (Apr 4 low) followed by 1.5510 (Apr 3 Low). Initial resistance is now located at 1.5774 (Apr 4 high) followed by 1.5787 (Apr 1 high).

�                Yen � 101.56

Initial support is located at 1021.27 (38.2% retracement of the 98.56 to 102.95 advance) followed by 100.24 (61.8% retracement of the 98.56 to 102.95 advance). Initial resistance is now at 102.95 (Apr 3 high) followed by 103.59 (Mar 11 high).

�                Pound � 1.9930

Initial support at 1.9911 (Apr 4 low) followed by 1.9760 (Apr 3 low). Initial resistance is now at 2.0048 (Apr 4 high) followed by 2.0090 (Mar 28 high).

�                Australian Dollar � 0.9221

Initial support a 0.9100 (Apr 4 low) followed by 0.9024 (76.4% retracement of the 0.8953 to 0.9254 advance). Initial resistance is now at 0.9254 (Mar 27 high) followed by 0.9290 (61.8% retracement of the 0.9499 to 0.8953 decline).

�                Gold � 915.70

Initial support at 888.20 (Apr 3 low) followed by 873.00 (Apr 1 low). Initial resistance is now at 914.57 (Apr 4 high) followed by 921.00 (Apr 1 high).

Pressure is mounting on Gulf states to fight surging inflation when they meet on Wednesday by severing the links between their currencies and the US dollar, according to a report in the Times, which cited analysts. The paper said officials in Qatar and the United Arab Emirates have denied rumours of an imminent decoupling, but investors are betting on reform and are rushing to buy local currencies as investment banks issue fresh calls for revaluation.

Analysts were cited as saying, however, that Gulf states are unlikely to decouple suddenly from the dollar and predicted more measured moves towards links to a basket of currencies.

Faced with rising construction and labour costs, as well as severe recruitment problems, Gulf corporations are leading the call for currency reform, the paper said.

“Human resources are becoming scarce. Supplies are becoming scarce. De-pegging would help a great deal,” Khalil Sholy, the president of Qatar’s United Development Company was cited as saying.

Reports emerged last week that Gulf central banks were organising meetings this Wednesday, March 19, and on April 14 to discuss the possibility of depegging their currencies from the dollar.

Dollar remains generally weak and edges to another record low of 1.5650 today. Markets are preparing for another round of inflation data from US. Headline CPI is expected to remain unchanged at 4.3% yoy while core CPI is expected to ease back to 2.4% yoy in Feb. Markets are generally expecting Fed to cut rates by 75bps to 2.25% next week and that expectation is unlikely to change unless we have an unexpected deep drop in the CPI today. Meanwhile, U of Michigan consumer sentiment is expected to deteriorate further from 70.8 to 69 in the month of March.

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