Daily Report: The Day Finally Comes, ECB and NFP Watched

Market Overview | Written by ActionForex.com | Jul 03 08 07:55 GMT |

The highly anticipated day of ECB rate decision and Non-farm payroll finally comes. ECB is widely expected to raise rate by 25bps to 4.25% after Trichet's hint in last meeting and subsequent hawkish comments from ECB members. Considering that consumer inflation has now doubled ECB's target and reached 4% yoy in Jun, PPI also topped at above 7% yoy in May, part of the markets speculate that a one-off 25bps hike is simply note enough to bring inflation back down. Some speculates that ECB could give a one off aggressive hike of 50bps and stop there but this is the unlikely scenario. Indeed the focus is on whether Trichet, after delivering a 25bps hike, will hints that it's really a one-off hike as suggested by some ECB members, or will maintain the degree of hawkish tones and suggest there may be more in the near future.


Another major market mover today is the always important non-farm payroll report. Markets expect the job market in US continued to contract for the sixth consecutive month by -60k in Jun. Unemployment rate is expected to tick down from 5.5% to 5.4%. Leading indicators saw ADP employment fell -79k, challenger report showed 46.8% increase in layoffs, continuous claims hit highest level since Feb 04, employment component of ISM manufacturing index dived to 43.7. There isn't much room for an upside surprise today .

However, NFP will be released at the same time when ECB press conference starts at 1230GMT. So, expects much volatility at that hour and markets could flip flop as ECB press conference goes. Also, note that ISM non-manufacturing index will be released at 1400GMT today. Economists expect the index to stay expansionary at 51 in Jun. Hence, the volatility could extend further in the US session.

Before the above, Services PMIs in Eurozone and UK will be released, with Eurozone retail sales too, in European session. Released earlier, Swiss CPI was unchanged at 2.9% yoy in Jun. Australian trade balance turned deficit at -956M in May.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.5810; (P) 1.5849; (R1) 1.5921

EUR/USD turns into sideway trading after reaching as high as 1.5890. Nevertheless, intraday bias remains on the upside as long as 1.5775 minor support holds. As discussed before, prior break of 1.5843 resistance is taken as the second signal that consolidation from 1.6019 has completed at 1.5302 already. Retest of 1.6019 record high should be seen. Break will confirm medium term up trend has resumed. On the downside, below 1.5775 will indicate that an intraday top is in place and bring pullback to 4 hours 55 EMA (now at 1.5720). But downside should be contained well above 1.5468 support and bring rally resumption.

In the bigger picture, a medium term top is in place at 1.6019 after meeting 1.6 psychological resistance. Above 1.5843 indicates that such consolidation has likely completed at 1.5302 already. Further decisive break of 1.6019 will confirm this case and bring rise to 61.8% projection of 1.4309 to 1.6019 from 1.5284 at 1.6341 first. On the downside, while another setback cannot be ruled out before completing the consolidation, downside should be contained above 1.5302 support. Break of this support level is needed to switch to the case that price actions from 1.6019 are developing into deep correction to test 1.4966 cluster support.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
1:30	AUD	Australia Trade balance (aud) May	-965M	-900M	-957M	+12M
1:30	AUD	Australia Export M/M May	1.00%	N/A	5.80%
1:30	AUD	Australia Import M/M May	6.00%	N/A	-2.20%
5:45	CHF	Swiss CPI M/M Jun	0.20%	0.30%	0.80%
5:45	CHF	Swiss CPI Y/Y Jun	2.90%	3.10%	2.90%
7:55	EUR	Germany Services PMI Jun		53.3	53.3
8:00	EUR	Eurozone Services PMI Jun		49.5	49.5
8:30	GBP	U.K. Services PMI Jun		49.5	49.8
9:00	EUR	Eurozone Retail sales M/M May		0.50%	-0.60%	-0.70%
9:00	EUR	Eurozone Retail sales Y/Y May		-0.70%	-2.90%	-3.00%
11:45	EUR	ECB rate decision Jul		4.25%	4.00%
12:30	EUR	ECB press conference
12:30	USD	U.S. Jobless claims		N/A	384K
12:30	USD	U.S. Non-farm payrolls Jun		-60.0K	-49.0K
12:30	USD	U.S. Unemployment rate Jun		5.40%	5.50%
12:30	USD	U.S. Avg. hourly earnings M/M Jun		0.30%	0.30%
12:30	USD	U.S. Avg. hourly earnings Y/Y Jun		3.40%	3.50%
14:00	USD	U.S. ISM non-manufacturing Jun		51	51.7