Broker's Notes: Euro holds firm; so does gold

Euro

The euro and high-yielding currencies held firm on Friday after an improvement in US housing and jobless claims data bolstered investor appetite for risk ahead of key US jobs data due later in the day. Positive news on the US economy and rises in global shares have tended to help the euro and higher-yielding currencies more than the dollar in recent months, as investors increasingly see the greenback as a funding currency for investments on expectations of a prolonged period of near zero rates in the US Charts signal that the next target for the euro was around $1.2873 - a 38.2 percent Fibonacci retracement of its fall from its August peak around $1.3334 to its August low near $1.2588. The target after that would be $1.2923, touched on Aug. 18.

Yen

The yen however was locked near a 15-year high against the dollar and the Swiss franc hovered near a record peak against the euro on simmering worries about a potential slowdown in the US and global economies. Many investors have doubts over whether Tokyo will step into the forex market now given that Tokyo could have trouble convincing other G7 members about the need to intervene at a time when they are calling on China to make the yuan more flexible to ease global imbalances. A sharp drop in dollar/yen, such as 1 to 2 percent or more in a single day towards the 80 yen level and below, is seen as the most likely scenario that would prompt Japan to stick its neck out and buy dollars.

US employment data

The US non-farm payrolls data are due at 4.30 PM UAE time. Reuters poll of economists hint that US employment likely fell for a third straight month in August as more temporary census jobs ended and cautious businesses scaled back hiring, an outcome that could pressure the Federal Reserve to prop up growth. It is expected that non-farm payrolls could come in at -100,000 after declining by 131,000 in July.

Against the backdrop of weak data such as housing, larger-than-expected job losses last month could heighten fears the economy is sliding back into recession and push the Fed - the US central bank - closer to launching a fresh round of bond buying. Jobs scarcity is hurting consumer spending, which normally accounts for about two-thirds of US economic activity, leaving the recovery from the worst recession in 70 years sputtering. Growth slowed markedly in the second quarter and Fed Chairman Ben Bernanke has said the central bank stands ready to take fresh measures to support the economy if needed.

Gold

Gold prices traded firm in the early deals on Thursday, with buyers cautious on the physical market, as investors wait for key U.S. job data due later in the day for further clues on health of the economy. Data released on Thursday showed a surprise rebound in pending sales of previously owned homes in July, as well as a fall in new jobless claims last week in the U.S. Despite the market's bullish sentiment, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust fell for the first time in a week on Thursday with a sizable decline of 9.12 tonnes, the largest one-day drop since late July.

Oil

Oil fell on Friday for the first day in three as markets await the data while Hurricane Earl neared the country's east coast, fuelling concerns of disruptions to refineries and demand during the Labor Day long weekend. Atlantic storms in the past few weeks have veered north, staying away from oil and gas production and refining infrastructure in the Gulf of Mexico. The US Energy Information Administration said that Hurricane Earl could affect 1.1 million barrels per day of US operable refinery capacity on the Atlantic coast, or about 7 percent of the nation's total. Total U.S. petroleum inventories are at their highest since weekly records began in 1990. In a market where fuel supplies remain ample, a disruption to refineries might prove to be bearish for oil prices as less crude would be processed.   Earl may also curb demand for motor fuel from holidaymakers who stay away from the roads as the US driving season comes to a close this weekend.

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