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Friday, 7 Mar 2008
Data On Tap - NFP Report
The greenback slipped all across the board yesterday against most of the major currencies. The USD finished yesterday's trading session more than 100 pts.down against the EUR, GBP and the JPY.
The Unemployment Claims report was released yesterday. The report showed that the number of people filing new claims for unemployment insurance fell last week by 24k to 351k, below the previously expected 363k claims. However, analysts expect the initial claims to climb further over the next few months. The report also showed that unemployment claims have climbed to the highest level in over two years. This fact indicates that people are having a harder time finding jobs, even though yesterday's report showed a slight improvment. The report also fueled speculation that the unemployment rate will be higher in today's employment report released by the Labor Department.
The National Association released yesterday the Pending Home Sales report for January. This index indicated some instability in the U.S. housing market showing no change in January, against expectations that this figure would tumble by 1%. Since January 2007, the PHSI has fallen by 19.6% to a reading of 85.9, down from 106.9. Regionally, the PHSI jumped 13.0% in the West to 93.8 while rising 0.6% to 85.2 in the Midwest. By contrast, the PHSI declined by 4.1% to 69.6 in the Northeast, and in the South the index fell 6.1% to 89.5.
Cleveland Federal Reserve President and FOMC voting member Sandra Pianalto spoke yesterday about the US economy and the Fed's future monetary policy. Pianatlo said that the economic activity is still highly vulnerable to a credit crunch which can start suddenly and spread fast. She also said that the Fed has to be ready to act quickly in the near term and that the possibility of a credit contraction has caused her to lower her economic growth forecast over the next months.
Investors are also closely following the sharp rise of Gold and Oil and its effects on prices in the U.S. Gold increased more than 24% from the beginning of 2008 and it closed the trading session yesterday at the rate of $981 per ounce. While Oil appreciated almost 13% from the beginning of the year and it achieved yesterday the all time record high of $105 per barrel. These rising commodity prices will exacerbate the current problems facing the U.S economy.
Today we are expecting mixed but important indicators to be released from the United States. On the positive side, the Nonfarm Payrolls and Average Hourly Earnings reports are forecasted to show improvement from their previous figures. The Nonfarm Payrolls report is expected to show 25K, a rising trend from the -17K reading of January. Average Hourly Earnings report is forecasted to show an inflation of 0.3% in the wages paid to nonfarm jobholders, which is an improvement from the 0.2% inflation rate of January.
On the negative side, the Unemployment Rate s forecasted to increase to 5.0 pct from 4.9 pct in the previous month. If the aforementioned figure surprises on the downside, then Forex traders may interpret it as a very negative sign for the greenback and will continue to seek a lower risk investment alternative. However the main news of the day will be the NFP report and only a strong upside surprise will cause the greenback to consolidate today, after this week's heavy losses all across the board.
The EUR hit a string of new all-time highs yesterday, peaking at the 1.5395 level, on the back of a host of lower than expected U.S economic readings over the last few days and the ECB announcement of keeping its benchmark rate unchanged at 4.00 pct.
Now although Euro-zone inflation came in at 3.2 pct in February, the highest level recorded since the launch of the EUR, the ECB cannot cut rates in response to slowing Euro-zone growth for the moment.
The ECB is likely to wait for signs of a decline in inflation pressures and a more protracted slowdown in growth before cutting rates.
Today's key US Nonfarm Employment Change data and Unemployment Rate report will be closely watched by traders and a similarly weak report could spark further losses for the dollar.
The main Euro-zone news today will be the monthly German Industrial Production report. The report is expected to show an expansion of 0.3% in January, down from the 0.8% increase observed in December. Traders should also pay attention to the ECB President's speech today titled "Globalization, Inflation and Monetary Policy” which may include many hints about the ECB policy for the near term. However all traders attention will shift to the key U.S NFP report today and any sharp EUR movement will be dollar centric.
Elsewhere, the pound hit the 2 dollar mark again for the first time this year after the Bank of England's statement yesterday. The Bank of England left interest rates unchanged at 5.25 pct mainly as a result of inflation concerns and worries of the economy slowing. The BoE's decision to keep interest rates unchanged was inline with market expectations. Although a further cut is expected, analysts do not see any change until May, given ongoing evidence of rising inflationary pressure. Anyway, The BoE decision not to cut the interest rate should keep the pound well-supported against the dollar for the short term.
The JPY gained ground all across the board yesterday as fears of a global economic slowdown continued to rise. The JPY gained 130 pts against the USD and it reached a new three year high against the greenback record peaking at a rate of 102.5. The robust appreciation of the JPY versus the greenback is hurting Japanese exports and aiding in their economic slowdown.
Japan's index of leading economic indicators dropped to 30.0 in January from a revised reading of 50.0 in December due to a decline in industrial production and lower shipments of durable products such as consumer electronics products, according to preliminary data released Thursday by the Cabinet Office. Moreover, the annual machine tool orders report fall to -0.7% from 0% last year.
Forex traders should scrutinize the Japanese Interest Rate Announcement today. The Bank of Japan is unlikely to touch interest rates. Some analysts see the negative figures from the industrial sector will pressurize the BoJ into considering a rate cut from 0.5% to 0.25%. However one thing is clear is that there will not be a rate increase in the current environment. The JPY will maintain its bullish surge for as long as risk aversion keeps a stranglehold on investors and with fears of a sharp global economic slowdown rising, the short term outlook for the JPY remains very positive.
This pair is currently trading in the middle of a steady upward channel that began over a month ago. This pair has now breached the key 1.5400 resistance level and indicators are still very bullish, although we are in deep overbought territory. The next target price will be 1.5500.
The RSI and Momentum on the 4 H chart have a steep positive slope indicating further bullish momentum. However the Stochastic Slow is about to cross above 80, so there maybe some consolidation after yesterday's sharp rally. The preferred strategy today will still be a long position as the daily chart gives an overall bullish signal.
This pair is in the midst of a wide downward channel and this pair is now heading towards the bottom of this channel. All indications are that there is room for further downward movement after this pair breached the key 103.00 resistance level. The preferred strategy today will be to go sell on highs. Next target price will be 103.00.
There are very strong bearish signals on both the hourlies and the daily charts. The RSI and Momentum are negatively sloped. This pair is trending downwards and there are no imminent indications of a reversal. Therefore traders can maximize profits by entering a steady short position.
The Wild Card
This commodity breached the record high of 105.00 yesterday and it seems that there is more steam left in this steep bullish climb. All charts are still giving a strong bullish signal, however short term corrections will continue to pullback this sharp rally. Forex traders can maximize profits by buying on a dip and taking advantage of a sharp bullish trend.
|07:45||EUR||French Gov Budget Balance||-80.8B||*||-86.0B|
|07:45||EUR||French Trade Balance||-5.8B||-5.1B||-4.7B|
|08:00||CHF||Foreign Currency Reserves||434.7B||*||-|
|09:30||GBP||Consumer Inflation Expectations||3.2%||*||-|
|11:00||EUR||German Factory Orders||m/m||3.3%||-0.4%||-|
|13:30||USD||Non-Farm Employment Change||204K||180K||-|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:55||USD||Prelim UoM Consumer Sentiment||75.1||76.2||-|
|14:55||USD||Prelim UoM Inflation Expectations||2.9%||-||-|
|20:00||USD||FOMC Member Evans Speaks||*||*||*|