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Wednesday, 2 Apr 2008
ADP Nonfarm Employment Change - On Tap
The greenback opened the second quarter of the fiscal year, with a big rally against most of its major currency rivals. The rest of the US markets did the same as the Dow Jones rallied for a near 400 point gain on the first day of April. The US economy has not seen such a significant boost at the beginning of Q2 since just before the start of Word War II. Surprising was not only the actual bullish movement which sent the EUR/USD back to a comfortable 1.56 support level, but the reasoning behind the push. Yesterday, ISM manufacturing data was released above forecasted expectations, which did contribute some to the trend, but the data was still way below where it should be to give any real indication that the US is pulling out of its lengthy economic slump. The index number, which tabulates employment, production, new orders, supplier deliveries, and inventories within the manufacturing sector rose by 0.2 points to 48.6, over 1 point from its forecasted mark, and still the mark was the lowest since 2003. Manufacturing prices meanwhile rose to their highest in over 2 years, 8 points over its last mark. The commodities market saw a split as Gold prices continue to drop while Gas and food prices march toward record highs.
Currently, Dollar traded pairs look similar to those of a couple months ago with EUR/USD floating around 1.56, GBP/USD trading below 2.00 and JPY back over the key support level of 100. The inkling is that risk appetite has returned to the market, as investors can now look at the dollar as an underdog in its behavior versus other major currencies.
Today will be a tremendously important day as we await ADP Non-Farm Employment Change as well as Fed Chairman Ben Bernanke's testimony to the Congressional Joint Economic Committee. Overnight trading saw a stall in dollar movement as most investors greatly anticipate the direction Bernanke will take when asked of the future plans of the Fed. ADP data has proven over and over that it is a vital measurement of the US economy; however the more relevant data from ADP will come Friday, with the release of Non-Farm Payrolls. Instead, look to the testimony to be the catalyst behind market volatility today. Futures markets have the Fed cutting the interest rate in April by 25bp at 80% chances right now. It was only over a week ago that the odds of a 50bp cut were just as high. It should be a defining day for the greenback, as investors should expect the unexpected around the time of Bernanke's testimony.
Yesterday, the EUR fell victim to a combination of surging dollar movement and bad economic data, from a normally reliable source. The German Retail Sales report saw its largest 1 month drop in over a year as a result of rising commodity prices. With the rising prices of gas and food in the world, the consumer market worldwide has seen a drop in numbers. History has shown that despite recent low consumer spending in the US, such behavior is short-lived. For the Euro-zone economies to see a drop in their consumer spending, the problem can become far more hurtful in the long-run. The hawkish stance of the European Central Bank (ECB) has been the predominant factor behind the EUR stability lately; however this has been possible due to consistently positive data from the Euro-Zone economies. If Europeans stop spending and we see a slide in economic data mainly regarding spending, than the 200 pip drop in EUR/USD prices over the last 2 days could become a regularity. Yesterday's $4 billion write-off by Germany's largest bank, Deutsche Bank was also a contributing factor to EUR bearishness.
Today the lone event from the Euro-zone calendar is European PPI. The data, which measures the rate of inflation by manufacturers when purchasing goods and services, is expected to drop marginally from its last release. Still, though it should have little contribution to market movement. Expect most EUR movement to come as a response to greenback movement throughout the day.
The JPY saw a drop in its strength as it fell against its major counterparts, in large part due to a drop in confidence in Japan. Still reeling from Monday's drop in Tankan indices, the Japanese currency saw 2 week lows against the dollar as the pair shot back above 101. The JPY is still suffering from the slowing growth of the US economy which prevents the infusion of foreign involvement into JPY related businesses. Rising food prices have hurt the Japanese, as they have for most nations, though such problems can be magnified in the Japanese economy due to its dependence on outside investment.
Unfortunately, there isn't a lot that can be done by the Bank of Japan to deter what is looking more and more like recession in Japan. The benchmark interest rate of 0.5% cannot be cut anymore, or at least not enough to bring about any relevant changes. It must also be said (once again) that the absence of a true economic leader, makes every decision or lack there of, that much more critical. What is needed to infuse the JPY is healthy risk appetite, which is currently absent from the market.
The Japanese have no scheduled events on their economic calendar for the rest of the week, as investors should pay great attention to US related news events to gage how the JPY will move. It is safe to say that the JPY will continue to be manipulated by world economic movement.
The pair is in the middle of a strong corrective move since the beginning of the trading week and is now floating around 1.5560. There is a very strong key Fibonacci support level at 1.5530 that if breached might unleash a much stronger bearish trend. It is advised to wait for the breach and swing in the market with a short position.
There has been a significant break through the key Fibonacci level of 1.9807 as the cable now floats around 1.9780. The bearish move has been validated and the slow stochastic of the daily chart shows no crosses which means that the bearish trend might continue. Going short appears to be preferable.
The pair is going up steadily for the past week, and is showing strong bullish momentum locally. The daily slow stochastic is showing that there is still plenty of room to run up, and the hourlies confirm the bullish rally. Going long might be a smart choice today.
The 4 hour chart is showing moderate bearish momentum as the Bollinger Bands are tightening. The daily chart is contradicting with distinct bullish momentum. Both time frames are indicating that a strong move is quite imminent, which makes it wise to wait for the move and swing in.
The Wild Card
WILD - Gold
The strong bearish corrective move continues with full steam and shows no signs of a halt. The Slow Stochastic on the daily chart is showing no crosses and is pointing at a very strong bearish sentiment. This is a great opportunity for Forex traders to join a very strong trend with high profit potential.
|12:30||GBP||Autumn Forecast Statement||-||-||-|
|13:30||USD||Core Durable Goods Orders||m/m||-0.3%||0.5%||0.5%|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||0.0%|
|13:30||USD||Durable Goods Orders m/m||-1.2%||1.6%||3.0%|
|14:45||USD||Flash Services PMI||54.8||55.2||-|
|15:00||USD||New Home Sales||468K||500K||-|
|15:00||USD||Revised UoM Consumer Sentiment||93.1||93.2||-|
|15:00||USD||Revised UoM Inflation Expectations||2.5%||-||-|
|15:30||USD||Crude Oil Inventories||0.3M||-||-|
|17:00||USD||Natural Gas Storage||-||-||-|
|00:30||AUD||Private Capital Expenditure||q/q||-4.0%||-2.8%||-|
|09:00||EUR||M3 Money Supply||y/y||4.9%||4.9%||-|
|12:00||EUR||GfK German Consumer Climate||9.4||9.2||-|