Challenger report showed around 82k announced layoffs in Jun, a drop of -21% from prior month but the Q2 total is still the worse since Q4 of 2005. Markets are expecting -60k job cuts to be shown in NFP tomorrow. It appears there is little room for upside surprise on the NFP, but the scenario can change post ECB rate announcement.

Euro, on the other hand, remains firm against dollar and surges against yen and sterling on hawkish comments from Trichet and stronger than expected producer inflation. Eurozone zone PPI report showed producer inflation accelerate sharply from revised 6.2% to 7.1% in May, beating expectation of 6.7%. ECB President Trichet warned that inflation could "explode" if ECB fails to act decisively, reaffirming the expectation that ECB will hike tomorrow.

Now, the markets are looking for more hawkish comments from Trichet tomorrow, therefore, if his comments are in any manner neutral to dovish, we could see some sudden downside movement in EUR, but likely not sustainable, as rate spreads are well in USD disfavor.

Sterling is pressured throughout the day after Construction PMI dropped to an 11 year low of 38.3 in June. Aussie remains supported by stronger than expected retail sales that jumped 0.7% mom in May, rebounding from prior -0.2% fall and beat expectation of 0.1%. The strength in consumer spending argues that prior tightening may not be enough to really slow demand and inflation.
JPY, look for some risk "avoidance" (as opposed to 'aversion') throughout the summer and for Yen to grind higher i.e. AUDJPY, USDJPY, EURJPY, GBPJPY, NZDJPY to grind lower.

Recommended Reading...

Inflation Could Explode If ECB Fails to Act Decisively, Says Trichet European Economy | Written by CEP News | Jul 02 08 08:43 GMT (CEP News) Frankfurt - In an interview with Germany's Die Zeit newspaper published on Wednesday, European Central Bank President Jean-Claude Trichet emphasized that inflation could "explode"
if the ECB failed to act decisively.

On June 30, Eurostat preliminary estimates indicated that inflation in the euro zone reached a record 4.0%
in June. Trichet provided his comments to Die Zeit ahead of the ECB's Governing Council meeting on July 3.

Many economists and market participants alike are expecting the central bank to raise its main refinancing rate by 25 basis points to 4.25% at the upcoming meeting.

By Todd Wailoo, twailoo@economicnews.ca This email address is being
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Tags: USD, EUR, GBP, AUD, JPY