2nd of June 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
2 June 2011 – 8:00 GMT
Thursday

____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________


FUNDAMENTAL ANALYSIS at 0800 GMT

USD
The yen temporarily weakened during the Asia session amid newspaper speculation that a political crisis could be imminent in Japan. Prime Minister Kan is due to face a vote of no-confidence in parliament today but we doubt he will lose his post. EURUSD traded 1.4308-1.4401, USDJPY 80.84-81.33. Asian equities are weaker at the time of writing after the S&P 500 closed down -2.3% on the day. The yield on the 10y US Treasury bond slipped below 3.0% for the first time in six months in response to yesterday's weaker US data. The ISM manufacturing report reflected recent weakness in regional indexes but the more worrisome print was the ADP employment change of +38k versus consensus +175k. The correlation with the ADP print and the Bureau of Labor Statistic's (BLS) payrolls data is volatile but nevertheless the weak print warrants some alarm. Our economists subsequently lowered their payrolls forecast to +125k from +200k earlier. Initial jobless claims are due but market participants remain focused on Friday's payrolls data and any further headlines that may transpire from the Eurozone sovereign debt crisis.

EUR
The euro sold off after Moody's downgraded Greece three-notches to Caa1 yesterday, citing the likely need for restructuring and a higher probability for default. S&P and Fitch still have single-B ratings for Greece.

Germany's Chancellor Merkel said that "we don't have a euro problem, rather we have a debt problem that has to be overcome". She said she wanted to "further deepen" coordination in key areas of economic policies.

Manufacturing PMIs across the Eurozone were revised down; Germany's to 57.7 from the flash 58.2, France's to 54.9, from 55.0 and Spain to 48.2 from 50. This fits in with the general view of a global soft patch, with the major economies expanding but at a softer pace.

JPY
Prime Minister Kan is expected to face a no-confidence vote in parliament today. We expect the motion will not be carried and that he will remain prime minister. Kan hinted that he may be willing to step down voluntarily in the short to medium term saying: "I would like the younger generation to take over various responsibilities once I fulfill certain roles that I need to do, as I work on handling the disaster".

AUD
The AUD got a significant boost from a strong retail sales report. April sales rose +1.1% m/m (cons. 0.4%). The trade balance, released at the same time, was somewhat weaker than expected but the negative surprise was not big enough to hold back the AUD.


A. White
Analyst at Fibosignals.com

DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.