NFP Signals the Start of a Recession Currency Pair Overview

Overall: Friday's non-farm payrolls report showed that the unemployment rate (6.1%) jumped to the highest in five years, and the rate of unemployment excluding 16 to 19 year olds rose to 5.8%. The economy has now lost 605,000 jobs in 2008. The number of unemployed has risen by 2.24 million over the past 12 months and the 1.4% increase in unemployment over that time is the highest in the post World War II period. The report also showed that the private sector shed 101,000 in August.

The Euro (Eur/Usd) fell 0.56% against the dollar. The Economic Ministry in Berlin said today that industrial production fell 1.8% in July, after increasing 0.1% the previous month, led by a drop in demand for machinery. For the year, production fell 0.6% when adjusted for the number of working days. After contracting in the second quarter, Europe's largest economy is showing little sign of recovery. Factory orders fell in July, manufacturing declined and business confidence fell to the lowest level in three years.

The Pound (Gbp/Usd) fell another 0.3% as it headed to its seventh straight weekly decline. Traders may be looking to sell the pound while the Bank of England keeps borrowing costs unchanged, which will likely delay any recovery for the U.K. economy. UBS is now forecasting a U.K. recession for the second half of the year and analysts at Sanford C. Bernstein & Co. said today that as many as 1.3 million British households may be left in a negative equity position.

The Aussie (Aud/Usd) fell a massive 1.31% as commodities continued to decline. Australian exports are likely to suffer if Chinese demand for iron ore and other raw materials decline as many economists now expect. The Australian dollar fell to its lowest in 2 years against the Yen as traders continued to close carry trade positions.

The Cad (Usd/Cad) rose 0.48% after Statistics Canada said the Canadian economy added 15,200 jobs in August, bolstering speculation that the Bank of Canada while hold borrowing costs steady at its October meeting. Canada's unemployment rate held steady at 6.1%.

The Swissy (Usd/Chf) rose 0.7% after traders sold Treasuries. The yield on the benchmark 10 year note rose .9 basis point to 3.63%.

The Yen (Usd/Yen) rose 0.07% after being lower most of the day when afternoon buying came into the S&P. The Yen was still heading to its biggest weekly advance against the dollar in 3 months as concerns over a global recession took hold of equity markets, leading traders to reduce risky carry trade positions.

U.S. Session Wrap - U.S. economy is likely to contract

Equity markets managed a move into positive territory on Friday afternoon, but with many now believing the U.S. economy is likely to contract later in the year there may be little reason to buy stocks now. “It just may be easier to move out of the way of a falling knife than it is to catch it,” said Matthew Carniol, chief currency strategist at TheLFB-forex.com. “While investing depends on factors such as time frame, even very long-term investors might feel inclined to wait out this turbulent period. Housing tends to lead the economy into and out of recessions but right now, there isn't much data indicating housing may be reaching a bottom."

At the close of floor trading on the NYSE, the DOW was on 11,220.96 after gaining 32.73 points (0.29%). The S&P closed on 1242.31, up 5.48 points (0.44%) while the NASDAQ finished trading on 2255.88 with a loss of 3.16 points (-0.14%). Treasuries moved lower on the day as traders speculated the Fed could make a rate cut later in the year. The yield on the two-year note rose 5.2 basis points to 2.222%. Ten-year note yields increased 2.9 basis points to 3.650. The dollar continued its run against most major currencies, gaining 0.66% on the euro, 0.28% on the pound and 0.54% against the yen.

In other news, In other news, the Mortgage Bankers Association said in a report today that new foreclosures rose 1.19% in the second quarter. That was the fastest pace in almost 30 years and was the first quarterly increase of over 1.0%. The percentage of homes in foreclosure rose to 2.75%, nearly triple the amount at the end of 2005 and the percentage of loans with one or more overdue payments rose to 6.41%, the most on record. “People chose the lowest payment option to get into some of the very expensive housing markets and now that prices are coming way down, they can't sell and they can't afford the higher payments,'' said Jay Brinkmann, chief economist of the Mortgage Bankers Association.

Crude oil for October delivery fell $1.66 (-1.5%) to $106.23 a barrel as the dollar continued to climb against the euro and investors continued to trade the demand destruction theory.

Gold for December delivery rose $3.40 (0.42%) to $806.60 per ounce. Traders see $800 as being a crucial technical level, and it may have been defended today.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

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