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Friday, 6 Aug 2010
Dollar Slumps Prior to Non Farms Report
Weekly U.S. unemployment numbers sent the dollar lower during U.S. trading hours today as applications for unemployment insurance rose to a three month high. The negative employment data comes prior to today's release of the all important non-farm payrolls.
USD - Weak Data Hurts Dollar
The dollar fell following the release of disappointing U.S. weekly employment numbers, only a day before the release of the high impact non-farm payrolls report. The weak economic data serves as a reminder of the recent trend of disappointing economic reports stemming from the U.S. economy. Speculation of further easing in monetary policy by the Federal Reserve is also fueling weakness in the greenback.
Yesterday the EUR/USD rose to 1.3180, following an opening day price of 1.3146. The Cable was unchanged at 1.579. The yen continued to strengthen as the USD/JPY fell to 85.88 after opening yesterday's trading at 86.04.
A Wall Street Journal article outlined steps the Federal Reserve could take to increase quantitative easing in light of the recent downturn of the U.S. economy. The Fed is not expected to begin tightening interest rates until 2011 and may be searching for new ways to stimulate the struggling U.S. economy.
Today's release of the critical U.S. non-farm payrolls report will be the highlight of today's trading. The jobs data will provide more clarity to the extent of the U.S. economic recovery along with more speculation on just what the Fed will do next. Expectations are for a decline of 63K jobs for the month of July. Worse than expected results would show further deterioration in the U.S. economy and could send the dollar lower versus the major currencies. Resistance levels for the EUR/USD come in at 1.3270 followed by 1.3350.
EUR - No Change to European Interest Rates
Yesterday both the European Central Bank (ECB) along with the Bank of England (BOE) held their key interest rates steady as market reaction to announcements were muted with key players awaiting jobs data from the U.S.
The Cable was unchanged on the day while the EUR/GBP was higher 0.8295, from an opening day price of 0.8277. The EUR/JPY also ended the day unchanged.
In his comments following the interest rate decision, ECB President Jean-Claude Trichet described a rosier picture for the European economy. Economic growth was better than expected during the second quarter but he also warned markets of slowing growth in the second half of the year.
The BOE signaled its intention to hold both its interest rate along with its bond purchases at the current levels. An increase in purchases would constitute further monetary policy easing by the BOE Monetary Policy Committee. As expected, interest rates were held at a record low of 0.5% following signs of an improving British economy. Last week Q2 GDP was reported unexpectedly higher by 1.1% and has fueled a rally of the pound versus the dollar.
British manufacturing and inflation data are due to be released this morning. Traders will be following these two releases, in particular the inflation numbers. Positive outputs could send the GBP/USD higher above the resistance line at 1.5970 which coincides with the 61.8% Fibonacci retracement level from the high last year in August.
JPY - USD/JPY Forms Tweezer Candlestick Pattern
The yen continues to strengthen versus the dollar as weak U.S. unemployment numbers pushed the USD/JPY lower in line with the long term trend of the pair.
The USD/JPY finished the day down at 85.84, after opening the day at 86.04. The GBP/JPY was unchanged at 136.45, as was the EUR/JPY at 113.15.
Following the release of the weekly U.S. unemployment claims, the USD/JPY slumped below the 86 level to a low of 85.70 before recovering somewhat. The long term downward trend of the pair appears to be increasing as the 20-day simple moving average is sloping sharply lower. However, traders should be aware of the tweezers candlestick pattern that has formed from the lows of Tuesday and Wednesday at the price of 85.31. This is considered a potential reversal pattern and should serve as short term support for the pair. In light of this reversal pattern, stops should be tightened on any short positions
Traders should be eyeing the release of the U.S. non farm payrolls report today. If the result fails to meet the market's expectation of a decline of 63K jobs, the USD/JPY should continue its bearish trend.
Crude Oil - Crude Unchanged Following Disappointing U.S. Employment Data
Spot crude oil prices were unchanged in yesterday's trading. The price of spot crude reached a high of 82.38, but was knocked down due to the weak U.S. employment numbers and finished the day at the opening price of $82.15.
Weak unemployment data has hurt prices of spot crude oil as continued high unemployment numbers reduce future demand for crude oil. Also a strong dollar for part of the day's trading sapped momentum from the commodity's bullish run.
A short trading range for today's prices also indicates indecision on the part of crude oil traders as they await the outcome of today's U.S. non-farm employment change. A positive data release could send the price of the commodity to its next resistance level which rests at a price of $83.00, followed by $84.30. Spot crude oil prices failed to breach the $83 level on Tuesday. The next support levels rest at $81.50 followed by $80.
After several days of bullish movements, the pair remained at a relatively stabile level yesterday. Currently, a bearish cross that takes place on the daily chart suggests that a bearish correction may take place today, with potential to reach the 1.3100 level.
The Cable continued with the flat trading during yesterday's session. The Cable has tested the 1.9565 level for several times during the last few days, yet did not manage to breach this level. As the 4-hour chart's MACD continues to point down, the pair might see a modest drop today.
There is a very accurate bearish channel formed on the daily chart, as the pair is now floating in the middle of it. Nevertheless, as all indicators on the 4-hour chart are now pointing up, a bearish correction may take place today. The next key level looks to be placed at the 87.00 price.
The pair erased some of its gains during yesterday's trading session. After peaking at the 1.0550 level, the pair saw a bearish movement, and is currently trading near the 1.0480 level. The bearish momentum might continue today, with potential to reach the 1.0370 level.
The Wild Card
Gold saw very peaceful trading during the past two days, and the commodity has consolidated around the $1,195 level. However, as both the MACD and the RSI on the daily chart are providing bearish indications, a downtrend could be impending. This might be a good opportunity for forex traders to catch the trend at its beginning.
|00:30||AUD||Construction Work Done||q/q||1.6%||-1.8%||-|
|07:00||CHF||UBS Consumption Indicator||1.65||-||-|
|09:30||GBP||BBA Mortgage Approvals||44.5K||45.5K||-|
|10:00||EUR||Italian Retail Sales||m/m||0.3%||0.5%||-|
|10:01||EUR||German 10-y Bond Auction||0.44|1.2||-||-|
|10:20||AUD||RBA Assist Gov Debelle Speaks||-||-||-|
|12:30||GBP||Autumn Forecast Statement||-||-||-|
|13:30||USD||Core Durable Goods Orders||m/m||-0.3%||0.5%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Durable Goods Orders m/m||-1.2%||1.6%||-|
|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||-||-||-|