The Forex Daily Digest – August 31, 2009

As we approach the end of the summer months, U.S. equities markets may experience a slow week but topped off by a potential activity when the government releases its August jobs report on Friday morning. Economists in the U.S. are predicting that employers dropped another 250,000 positions in August, which is a little more than last month’s 247,000. Prior to Friday’s jobs report from the Labor Department, stocks will prepare for two other reports on jobs -- an August report from payroll provider ADP and then weekly jobless claims.

The USD gained a bit of ground on Friday, wiping out a weekly loss against the EUR, as risk appetite remained the dominant theme in otherwise choppy, range-bound currency markets. The USD also gained versus a basket of currencies at the end of last week after stocks turned south.

The EUR overcame an earlier loss after the European Commission's gauge of economic sentiment for the 16-nation euro zone showed a stronger-than-expected increase in August. The indicator rose to 80.6 from a reading of 76 in July; economists expected an increase to 78. The JPY also had major domestic issues to focus on, hit by unemployment numbers and the anticipation of this past weekend’s lower house elections.

Japan's Prime Minister Taro Aso conceded defeat in elections yesterday as media exit polls indicated the opposition had won by a landslide. The left-of-center Democratic Party of Japan won 300 or more of the 480 seats in the lower house of parliament, ousting the Liberal Democrats, who have governed Japan for all but 11 months since 1955.

The GBP fell for a fourth straight week against the USD as reports added to concern the U.K.’s worst recession since the 1940s may have not run its course, reducing the demand for the nation’s assets. The GBP fell this month as evidence illustrated the U.K. recovery has fallen behind that of the rest of the euro region, even after the Bank of England cut its key interest rate to an all-time low of 0.5 percent and earmarked 175 billion pounds ($285 billion) to purchase bonds to encourage the British economy.

Reports say that Canada is preparing to issue a USD bond for the first time in more than a decade in an effort to expand its borrowing and meet new obligations it made to the International Monetary Fund. Canada will reportedly borrow up to $3 billion on the global bond market in the near future. Canada last issued a U.S. dollar global bond in November 1998 and it matured in November 2008.

Federal Reserve officials are considering reducing their purchases of mortgage debt to push the $1.45 trillion program into next year rather than end it on Dec. 31st. They reportedly have not made up their minds, and some are concerned that the U.S. central bank's intervention in the housing market may be negatively affecting private lenders.

This week’s economic calendar is very busy and includes the Chicago PMI for August and the July Construction Spending report. Also, look for the ISM Manufacturing and Services Index, Auto and Truck Sales, Productivity, Factory Orders and on Wednesday the FOMC Minutes from the August 12th meeting. Then on Friday, it’s the Non-Farm Payrolls for August along with the Unemployment Rate, Hourly Earnings and the Average Workweek numbers.

As the second quarter earnings season comes to an end, this week expect earnings from Benihana Inc, America's Car-Mart, Inc., Gander Mountain Co., Vivendi, Hovnanian Enterprises, Inc., Canadian Western Bank, Del Monte Foods, Global Crossing, Krispy Kreme Doughnut, Movado, and H&R Block, Inc.

Happy Trading,

James Dicks