Broker's Notes: Euro drops to four month low against US dollar

Euro

The euro dropped to a four-month low versus a broadly firmer US dollar on Friday ahead of US jobs data, which is expected to provide more evidence of a stronger US economic recovery. A sell-off in peripheral euro zone government bonds before a flurry of supply next week and an EU proposal that could force those who lend to banks to bear big losses should they fail helped knock the single currency lower. The euro extended losses after sliding more than 2 percent over the two previous days and briefly dipped below support at the $1.2970 area lows hit in late November and early December. The dollar benefited from weakness in the euro and remained buoyed by the ADP report, which showed a record number of private sector jobs were created in December.

Gold

Gold hovered around $1,370 on Friday, as investors wait for a key US employment report due later in the day for clues on the health of the economy, as the dollar held firm. Some economists raised their forecast, after Thursday's ADP report showed a surprise jump in private jobs number for December. Market poll showed that payrolls likely increased by 175,000 in December, revised up from 140,000. Non-farm payrolls number is not always correlated with the ADP figures, and the dollar could face some downside risk if the data turned out not as strong. Physical buying in Asia continued to give support, as jewellers, bullion traders and investors are lured by the current price level, some $60 below its record high of $1,430.95 hit nearly a month ago. Buyers were a bit cautious ahead of the key data release, which is expected to give a clear direction to the market.  Silver edged down 0.3 percent to $28.96, on course for a 6.1 percent weekly decline, it’s biggest since early July. Holdings in the world's largest silver-backed exchange-traded fund, iShares Silver Trust had been on a steady decline since it hit a record high at 10,964.14 

Oil

Crude oil prices fell more than 2 percent on Thursday to below $89 a barrel as a stronger dollar and weaker US equities deterred buyers. Oil markets weakened as Wall Street dipped on disappointing retail sales, placing more caution on oil investors anxious to see whether recent positive economic reports could translate into more consumer demand. The losses followed a volatile start to trade in the New Year, with crude extending December's gains to touch a 27-month high on Monday before investors began to reassess optimism about the commodities outlook for 2011.

Indian rupee

The Indian rupee weakened on Friday tracking losses in the euro, and ahead of US non-farm payrolls data due at 1230 GMT that is expected to reinforce a recovery in the world's largest economy and boost the dollar. Choppy shares failed to provide any clarity on the direction of foreign fund flows, which have been a key driver for the rupee in recent years. Indian shares seesawed on mixed Asian markets and sentiment was subdued on expectations for more rate hikes by the central bank after a sharp rise in food and fuel price inflation on Thursday. India's food price index rose 18.32 percent in the 12 months to Dec. 25, its highest in more than a year, data on Thursday showed. The fuel price index climbed 11.63 percent. The Reserve Bank of India is expected to raise interest rates by atleast 25 basis points on Jan. 25, when it reviews policy. One-month offshore non-deliverable forward contracts were quoted at 45.65, weaker than the onshore spot rate.

Sterling

Sterling rose against a sluggish euro on Thursday as investors continued to diversify away from the single currency, while the pound was able to shrug off knee-jerk losses triggered by weaker-than-expected UK services data. Large swathes of Britain's service sector suffered their first fall in output since April 2009 last month due to snowy weather and weak new orders, the Markit/CIPS services PMI survey showed on Thursday. British GDP probably grew by just 0.4 percent in the last three months of 2010, lower than many economists have forecast and little more than half the 0.7 percent recorded in the third quarter of the year, survey compilers Markit said. Renewed concerns over the euro zone periphery weighed on the single currency, with the market seeing Spanish debt issuance next week as a key risk after Portugal was forced to pay higher yields in a Treasury bill auction on Wednesday. 

Source: Richcomm Global Services, DMCC, Dubai; www.richcommglobal.com