FOREX TRADING LIGHT AS TRADERS AWAIT U.S. EMPLOYMENT REPORT

The U.S. Dollar is finished mixed on light volume as traders evened up positions ahead of tomorrow’s U.S. Unemployment Report.  The Dollar opened weaker against most major Forex markets this morning but erased losses as the day wore on.  Today’s weaker than expected U.S. ISM Services Report helped the Dollar regain some of its losses as this report showed the U.S. economy was still weak.  Some traders feel that weakness in the services sector will mean that tomorrow’s unemployment report will show more job losses than estimated.  Yesterday’s ADP employment report was worse than estimated.  This too weighed on traders’ minds.

 The GBP USD opened up strong but gave back some of its gains by the close on position evening.  This market has firmed up over the last two days because of oversold conditions and a better than expected U.K. Services Report.

 This morning the European Central Bank announced that its benchmark interest rate would remain at 1.0% as expected. ECB President Trichet said that the road to recovery would be “bumpy” while explaining why the central bank is in no hurry to withdraw its emergency stimulus.  After an early morning gain, the Euro lost ground to the Dollar and finished lower.

 The close in the EUR USD was slightly above a 50% level at 1.4260.  Breaking under this level will put the EUR USD on the bear side of a retracement zone.  Basically, this market is trading inside of its August range of 1.4447 to 1.4045.

 The USD CAD finished the day lower.  Steady to lower crude oil and a gain in equity markets helped to support the Canadian Dollar today.  Trading was light ahead of tomorrow’s U.S.employment report. 

 The USD JPY closed up on the day.  Oversold conditions and a firm stock market helped boost interest in the Dollar after several days of weakness.  Position evening ahead of tomorrow’s U.S. Non-Farm Payrolls Report also contributed to the Dollar’s strength. 

 Currently the Yen is battling the Dollar for safe haven status.  Today’s weaker than expected U.S. ISM Services Report helped draw interest back to the Dollar.  Tomorrow’s report should trigger a volatile move in the USD JPY.

 Demand was a little stronger today for the higher yielding NZD USD and AUD USD, but overall these two markets remain rangebound.  Yesterday it was reported that the Australian economy grew more than expected but today a report indicated that the trade deficit widened.  Exports fell and imports increased because stimulus plans increased domestic demand.  Traders are anticipating a rate hike by the Reserve Bank of Australia before the end of the year.  Tomorrow’s U.S. employment report will dictate whether traders will renew their quest for higher yielding currencies or decide that safety is best.

Forex Markets Await ECB Rate Decision

NEW YORK  -- European shares are posting small gains ahead of the European Central Bank interest rate decision and press conference, which might have a crucial influence in the financial market.

Almost every market in Europe is trading higher, up to now, and the gains are relatively small. The Nordic markets are the best performing in Europe, with Finland advancing as much as 1.8%, at the same time the German DAX is up only 0.06%, while the European blue-chip companies advanced almost 0.2%.

The market's resilience to move higher comes as later in the day the governor of the ECB, Jean-Claude Trichet, is expected to hold a press conference, in which he will explain the latest developments in the euro-area economy and will comment on the interest rate decision.

Earlier Thursday, the Asian markets closed in the green, led higher by the Shanghai stock market, which surged 4.8%. This is a huge change from just a few days back, when the Shanghai index dragged the global markets into a risk-aversion phase. Also during the overnight session, the S&P 500 futures gained.

The major currencies overall advanced against the dollar during the European session, after a relatively flat Asian trade. The best two performing pairs were the aussie and the pound, which had a similar performance during the prior day of trading, while the swissy and euro moved the least, as investors prepare for the ECB's interest rate decision.

The last few ECB press conferences have sparked a lot of volatility in the financial market, and especially in the foreign exchange market. As such, some market participants say that this may be a good opportunity for the major pairs to break free from the range-bound trading seen during the last three months of trading. However, the momentum reads of the major pairs look deeply overbought right now, something that mixes the picture.

The euro bounced from the 20-day moving average in the early part of the day, and since then has moved mostly higher. The euro has a very busy calendar ahead as investors expect the ECB's interest rate decision, followed by the press conference shortly after. These two reports are known to create a lot of volatility in the financial markets, so special care should be taken.

The yen broke briefly below the 92 area during the early Asian session, but this move was quickly retraced. Since then, the pair only headed higher, reaching the neutral pivot point.

FOREX-Yen down from 7-week highs; ECB weighs on euro

NEW YORK, Sept 3 (Reuters) - The yen slipped from a seven-week high against the dollar and declined versus other major currencies on Thursday as an upbeat tone in global stock markets reduced the Japanese currency's safe-haven allure.

The euro erased gains against the dollar after the European Central Bank offered no signs of an exit from unconventional measures aimed at stimulating the economy and signaled that interest rates will remain low for some time. For more see [ID:nL3374378].

Shares on Wall Street edged higher .SPX as investors focused on strength in sales by key retailers and a 4.8 percent rally in the Shanghai Composite Index .SSEC reassured investors that China can support a global economic recovery and raised appetite for risky assets.

"We've seen the strong performance overnight in the Chinese stock exchange. Some positive sentiment spilled over into European and North American trading," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

"There's clearly a risk appetite bias, but ... I think ahead of tomorrow's (nonfarm payrolls) numbers, it's unlikely to become a strong trend," he added.

The ECB earlier held interest rates at a record low 1.0 percent as widely expected and warned that now was not the time to withdraw state support as economies emerge slowly from recession. There are increasing signs of stabilization in the euro area economy, but uncertainty remains high, ECB President Jean-Claude Trichet said.

"Given the recent upside surprises to euro zone economic data, the market appeared to be somewhat positioned for a more hawkish tone from the ECB president," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

"On balance, his comments are cautious with regard to the economic outlook and that's dampening some of the euro's previous upbeat tone."

In late afternoon New York trading, The dollar rose 0.5 percent to 92.62 yen JPY=, after falling as low as 91.92 yen, according to Reuters data, its lowest since July 13.

The euro was little changed at $1.4254 EUR=, off a session peak of $1.4348, according to Reuters data.

The yen also fell against other major rivals, with the euro up 0.4 percent EURJPY=R, sterling up 0.8 percent GBPJPY=R, the Swiss franc up 0.3 percent CHFJPY=R, the Canadian dollar up 0.6 percent CADJPY=R and the Australian dollar up 1.1 percent AUDJPY=R.

PAYROLLS AWAITED

The euro also came under pressure after the ECB's Trichet confirmed the European central bank would offer banks unlimited 12-month funds at a flat rate of 1.0 percent, offering no sign of easing up on unconventional measures. [ID:nECBNEWS]

Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida, said the ECB had foiled hopes it would make the longer-term refi rate more flexible as a way out of its easing policy.

"I think some people were thinking that this could pave the way for rates to firm ... Obviously, that has been dashed," said Simpson.

Markets were becoming somewhat wary of taking on too much risk as policymakers have indicated a cautious stance on the economic outlook. Investors were also reluctant to place big positions ahead of a key U.S. jobs report on Friday.

Economists polled by Reuters are looking for job losses of 225,000 for August. ECON

U.S. data on Thursday showed new applications for jobless benefits fell last week, but the prior period's figure was revised up, highlighting the fragility of the labor market.

Separately, the Institute for Supply Management said its nonmanufacturing index climbed to 48.4 in August, the highest in 11 months. [ID:nN0391201]

"We've seen jobless claims come down markedly from their peak a few months ago, but they seem to have stalled around the upper (500,000) handle, I think that certainly implies continued softness in the jobs market, which undermines hopes for a rapid recovery," Travelex's Esiner said. (Additional reporting by Gertrude Chavez-Dreyfuss and Wanfeng Zhou; Editing by James Dalgleish)

Pakistani forex reserves rise to $14.31 bln

KARACHI, Sept 3 (Reuters) - Pakistan's foreign exchange reserves rose to $14.31 billion in the week ended on Aug. 29 compared with $12.85 billion previously, the central bank said on Thursday.
(For previous report, click on [ID:nSIN452915])
"The International Monetary Fund has increased its SDR allocation for all member countries and for Pakistan it equals to $1.2 billion," said Syed Wasimuddin, chief spokesman for the central bank.
The State Bank of Pakistan's reserves rose to $10.79 billion from $9.36 billion a week earlier, while reserves held by commercial banks also rose to $3.52 billion from $3.49 billion a week earlier, the State Bank of Pakistan said.
Reserves jumped by $1.11 billion to $12.96 billion in the week that ended on Aug. 15 when a new tranche of an IMF loan arrived.
Pakistan agreed in November to an IMF emergency loan package of $7.6 billion to avert a balance of payments crisis and shore up reserves.
The fund increased the loan to $11.3 billion in July, and then released the third tranche of $1.2 billion.
Foreign reserves hit a record high of $16.5 billion in October 2007 but fell steadily to $6.6 billion by November of last year, largely because of a soaring import bill.
On Aug. 1, the central bank stopped using foreign exchange to pay for diesel and other refined petroleum products, which will force importers to obtain the dollars they need in the market.
The central bank will continue to provide foreign exchange for crude oil imports until Feb. 1 next year. (Reporting by Sahar Ahmed; Editing by David Fox) (For more Reuters coverage of Pakistan, see: here)

UPDATE 1-Indonesia c banker says forex reserves at $60.3 bln

JAKARTA, Sept 2 (Reuters) - Indonesia's foreign exchange reserves are estimated at $60.3 billion currently, a central bank official said on Wednesday, following the allocation of special drawing rights (SDRs) by the International Monetary Fund (IMF).

'Our foreign exchange reserves increased from $57.6 billion to $60.3 billion currently,' the central bank's senior deputy governor, Darmin Nasution, told a news conference.

Deputy governor Hartadi Sarwono said in a statement on Aug. 21 that the IMF has allocated 1.74 billion worth of SDRs for Indonesia, which was equivalent to $2.7 billion, as part of its efforts to strengthen global liquidity.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies.

The central bank, which is due to hold its policy meeting on Thursday, has cut its key interest rate by a total of 300 basis points since December last year in order to help drive domestic consumption and spur growth in Southeast Asia's biggest economy.

($1=10135 Rupiah)

(Reporting by Adriana Nina Kusuma; Writing by Sonya Angraini; Editing by Sara Webb)