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Wednesday, 3 Aug 2011
ADP Non-Farm Employment Change on Tap Today
The US economy will be publishing several reports today, most importantly is ADP's publication of Non-Farm Employment Change for the private sector at 13:15 GMT. The employment data is a foreshadowing of Friday's Non-Farm Payrolls (NFP) data. The ADP report has a tendency to rapidly change the direction of the USD in trading and given the direction of employment changes this past week there is a chance it will surprise to the upside, helping to push the USD lower as the day progresses.
USD - USD Mixed as Investors Consider Budget Deal
The US dollar (USD) was seen trading with mixed results yesterday as investors weighed the finer points of the debt deal struck Sunday night. The value of safe-haven assets have been given a boost by a shift away from higher yielding assets, though the dollar has been receiving fewer of these gains as it tends to in times of uncertainty. Poor economic data in Europe and the US have helped drive this trend and this week appears to have risk aversion gaining in prominence.
Data so far has inched traders into a position of market pessimism which has dropped the value of riskier assets while garnering support for the safe-haven currencies. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, particularly in the fragile United States and euro zone in spite of calls for such a move to be edging closer.
With a heavy news day expected today, traders are sure to see a surge in portfolio adjustments as volatility becomes elevated. The US economy will be publishing several reports today, most importantly is ADP's publication of Non-Farm Employment Change for the private sector at 13:15 GMT. The employment data is a foreshadowing of Friday's Non-Farm Payrolls (NFP) data. The ADP report has a tendency to rapidly change the direction of the USD in trading and given the direction of employment changes this past week there is a chance it will surprise to the upside, helping to push the USD lower as the day progresses.
EUR - EUR Bearish as Risk Sentiment Shifts Away from Euro Zone
The euro (EUR) has been seen trading with largely bearish results so far this week as traders assess risk appetite across the region. Against the US dollar (USD) the euro was seen trading mildly bullish in late trading as shifts away from the greenback, due to uncertainty about the US debt deal, caused a stir in the foreign exchange market.
The economic calendar this week has been mostly bearish for the region with housing and manufacturing reports disappointing traders. The employment data across the euro zone and Britain has also shown little change. Switzerland, however, had a bullish trading day yesterday as its retail sales report astonished traders with a 7.4% surge, followed by optimistic growth in the nation's PMI publication by SVME.
On tap today, traders will witness the release of the region's retail sales report, though few consider it to be highly impactful given the series of significant releases out of the US economy today. Focus will undoubtedly be on the US employment and manufacturing sector today as both will be publishing highly relevant reports later in the afternoon. Should news produce bearish results there is a chance that more traders will move away from the EUR and into safe-haven assets.
AUD - Housing Dip Pulls Down on Aussie Dollar
The Australian dollar (AUD) was trading mostly weaker versus its currency counterparts yesterday after data releases have begun to shift traders back into safety. The Aussie has been losing momentum these past few weeks as risk aversion becomes predominant in the global market. Overriding these concerns, moreover, is a sudden dip in the Australian housing market which saw building permits and new home sales decline alongside shrinkage in the nation's house price index (HPI).
This movement has gouged the AUD against all of its currency rivals, especially against safe-havens like the US dollar (USD) and Japanese yen (JPY). Being tied to commodity prices could help lift the AUD in the near future, however, as oil prices hold above $94 a barrel, but general risk aversion is likely to push the currency lower as traders flee risk. On tap today, forex traders will see the release of Australia's retail sales figure as well as its trade balance. Both are forecast to show growth. If such is the case, traders may see the return of strength in early trading today.
Oil - Crude Prices Steady amid Risk Aversion
Crude Oil prices held steady Tuesday as sentiment appeared to favor a downturn in global stocks as the US Senate debates the proposed budget deal. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and manufacturing demand.
An expected jump in dollar values due to this week's risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD's gains not materializing, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.
The weekly chart shows a bullish engulfing pattern was followed by a false breakout above the trend line falling off of the May and July highs. A pullback from this resistance line formed a doji reversal candlestick which hints at declines in the EUR/USD. The 200-week moving average looks to be the first support at 1.4025 followed by the 200-day moving average at 1.3930. The rising trend line from the May low could also be supportive at 1.3830. To the upside 1.4580 will need to hold to maintain the bearish technical picture. A close above this level could go on to test 1.4700 and this year's high of 1.4940.
Three weeks of consistent gains for cable are beginning to shift the technical picture from bearish to bullish. Sterling has moved above resistance levels that otherwise would have contained the pair. The first break occurred above the neckline of the head and shoulders pattern at 1.6185 and the second major break occurred at 1.6370 above the previous trend line rising from the May 2010 low. Initial resistance will be the May 31st high at 1.6550 followed by the April high at 1.6745. A move lower for the GBP/USD will likely test the base at 1.6260 followed by the previously broken trend line off of the April high at 1.6140. A breach of 1.6000 could have scope towards 1.5780.
Yen strength has returned with a vengeance. Last week's candlestick closed with a shaved bottom indicating momentum is to the downside. This week's opening gapped higher but the price managed to hold below the current short term trend line from the July 20th high which comes in at 78.05. Additional resistance may be 79.60 and the 55-day moving average at 80.15 but the downside is calling. Support is found at 76.70 from last week's low followed by the all-time low from March at 76.11. A break here and we move into uncharted territory where the psychological support at 75.00 and 70.00 come into play.
The Swiss franc is in a similar position as the yen as the USD/CHF moves into uncharted territory. Bias remains to be short but Monday's opening gap higher could create a Harami reversal pattern which may lead to slight gains for the pair. A daily close will be needed for confirmation. Resistance is found at 0.8080 and 0.8275. A move higher to these levels would provide for potential short entries back into the long term downtrend with targets at the big round number at 0.7800.
The Wild Card
Yesterday the S&P 500 plunged 2.6% and the stock index closed below the neckline of a head and shoulders reversal pattern. The neckline runs beneath the March and June lows and comes in at 1,254. This move completes the bearish reversal pattern which has a measured move of 123 points for a target at 1,131. Forex traders should note the last time the S&P 500 traded at this potential target was in September 2010.