WORLD FOREX Robert Lynch

.WORLD FOREX: Euro Moves Higher Despite Jobs Data As Stocks Gain
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Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The euro strengthened in morning Friday trading, shaking off disappointing U.S. payrolls data, with unemployment soaring to a 26-year-high, as stocks moved into positive territory.

As is common after major data releases, the euro dipped and then spiked higher on the data, which showed unemployment ticking above 10%.

The euro initially sank to a low of $1.4821, from $1.4861 just ahead of the report, after the disappointing unemployment data cast doubt over the pace of the global economic recovery.

The U.S. labor market continues to lag other segments of the economy, bringing into question the pace of a recovery. But ultra-loose monetary policy provided by global central banks means lots of money still sloshes around investors' portfolios and needs a place to go.

This balance--how fast the global economy recovering versus how long investors can expect cheap money provided by central banks--could actually prop riskier investments, such as the euro and other higher-yielding currencies, even though the economic picture remains clouded, analysts said.

In morning New York trading, the euro was at $1.4885 from $1.4875 late Thursday, according to EBS via CQG. The dollar was at Y89.89 from Y90.75, while the euro was at Y133.78 from Y135.00. The U.K. pound was flat at $1.6582. The dollar was at CHF1.0151 from CHF1.0162.

The Dollar Index, a trade-weighted basket of six currencies, was at 75.630 from 75.727 late Thursday.

October payrolls declined a larger than expected 190,000, though September job losses were revised to 219,000 from an originally reported 263,000. The unemployment rate shot to its highest level in 26 years, to 10.2% in October, from 9.8% in September.

Analysts had expected a loss of 175,000 jobs, and an unemployment rate of 9.9%.

"The currency market is threading a needle every time it goes through one of these releases," said Daniel Katzive, foreign exchange strategist at Credit Suisse in New York.

For currency investors to continue bidding higher the euro and emerging-market currencies, such as the Brazilian real, the data must come in weak enough to prevent spooking investors that the economy is improving at such a pace that central banks will tighten monetary policy, essentially turning off the spigot of cheap money.

"At the same time, it can't be too weak to damage risk appetite," Katzive said.

The U.S. nonfarm payrolls number might have hit the "sweet spot" that's neither too bad to sap risk appetite, nor too good to make investors worry central banks will suck some money out of markets, he said.

Earlier this week, the Federal Reserve, the European Central Bank and the Bank of England all left their ultra-loose monetary policy in place.

"What the Fed did this week was reinforce that policy would remain ultra-accommodative, and that liquidity element is important in terms of potentially helping risk going forward," said Robert Lynch, currency strategist at HSBC in New York.

Meanwhile, not all investors remained go-go on risk, with the dollar dropping against the yen, hitting an intraday low below Y90.

Investors file out of the dollar and into the yen, which is considered an ultimate currency safe-haven, when they're concerned about bad economic news.

The euro could swing to a loss against the dollar if U.S. stocks give up their gains, said Shaun O*****orne, chief currency strategist at TD Securities in Toronto.

"We're still looking at equities and other risk assets as a big driver of what currencies markets do," he said.

Canada Morning
The Canadian dollar was lower Friday morning after coming under pressure as Canadian and U.S. jobs data for October both fell short of expectations.

The U.S. dollar was at C$1.0686 from C$1.0659 late Thursday.

After the U.S. jobs report it hit a high at C$1.0742, its highest level since Nov. 3, according to EBS via CQG.

The U.S. dollar reached an earlier session high at C$1.0731 after news that Canada lost 43,200 jobs in October, considerably weaker than the expected gain of 10,000. The unemployment rate increased to 8.6% from 8.4% in the previous month.

The Canadian dollar subsequently recovered as U.S. stocks shifted higher in midmorning trading.

Analysts said the details of the report were better than the headlines indicated, as full-time jobs increased by 16,500. Part-time losses of 59,700 drove the overall decline in jobs.

"Part-time employment, which dominates the volatility on the headline number, is essentially white noise," said Barclays Capital. "So, as hard as it is to say this was a good number, it remains the case that the only component with any information was pointing to CAD strength rather than weakness," it said.

Scotia Capital said the U.S. dollar "blew through" resistance after the earlier Canadian data, said a report from Scotia Capital.

Scotia's new forecast update now sees the Canadian dollar reaching parity against the greenback in the second quarter of 2010, one quarter earlier than its previous forecast, with the U.S. dollar falling to C$0.97 on a sustainable basis by the end of next year.

-By Bradley Davis, Dow Jones Newswires; 212-416-2654; [e-mail]

(Don Curren in Toronto and Fabio Alves in New York contributed to this article.)