Forex Europe Review – Euro, dollar drop on weak jobs data; yen, franc gain

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EURUSD opened the European session at 1.4431 and was boosted to 1.4469 following better than expected German retails sales but the euphoria was brief. Euro soon fell after euro zone inflation and unemployment data fuelled speculation that the European Central Bank will not raise interest rates any more this year since the data show that the recovery in the region is slowing down. The ECB is scheduled to meet next Thursday for its September policy meeting and markets are already pricing in that the policy makers are likely to recognize that the downside risks to growth have increased while the upside risks to inflation have diminished. A further drop in the euro was supported by a weaker dollar after a worse than expected ADP employment report that showed fewer jobs were created in August in the private sector than forecast. The focus will now turn to the non farm payroll report on Friday.

GBPUSD remained capped at 1.6315 with a brief 60 pips dip to 1.6255 following direction of the euro after euro zone inflation and unemployment data. Lack of significant UK data makes the pound more vulnerable before month-end rebalancing, especially if there will be a large dollar sell off. So traders are closing off cable positions to be cautious ahead of the U.S. non farm payroll report on Friday. Also grim outlook for the U.K. economy is still weighing heavily on sterling.

The Swiss franc recouped all losses made in the week as demand for the safe haven currency was boosted due to investors concerns of a slowing global economy after poor economic data from the euro zone and dovish minutes from the U.S. Federal Reserve August 9 meeting released yesterday. The notes show policy makers favored stronger measures to stimulate the U.S. economy . If a new round of quantitative easing is launched by the Fed, this could weaken the dollar. USDCHF was sold off, pushing it down to 0.8055 from the session open of 0.8152. Dollar decline was accelerated after the ADP employment report that reported fewer jobs were added to the private sector than had been expected. EURCHF fell to 1.1631. The fact that the SNB has not made any warnings recently to take measures to curb franc strength has made market players bolder in buying the currency.

USDJPY opened the session at 76.55 and eventually edged down to 76.45. Yen gained strength as investors are concerned about the global economic recovery. So they want to protect their investments in a safe haven, which the yen is still perceived to be. A U.S. employment report today showed fewer jobs were created in August than expected. If more weaker data come out, the chances of the Fed introducing quantitative easing increase, meaning dollar will weaken.