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Friday, 8 Jul 2011
Forex Traders Anticipating Bullish NFP Report?
An uptick in US private sector employment yesterday, reported by ADP, added to the risk-taking sentiment by most investors which came as a result of a rate hike in Europe. Should today's Non-Farm Payroll (NFP) data continue this trend of optimism, we may see the greenback taking severe losses against its rivals as traders seek out higher yields.
USD - USD in Decline as Employment Data Sparks Risk Taking
With the European Central Bank (ECB) hiking interest rates, and private sector employment rising in the US, the value of the USD appears to be taking a dive as riskier currencies like the EUR jumped in yesterday's afternoon and evening sessions. The US dollar was seen decreasing yesterday as traders began to seek riskier assets following statements by the ECB's Trichet that Portugal was not in as bad a shape as assumed, and debt and inflation would be taken care of throughout the euro zone.
The EUR/USD was seen moving towards 1.4370 yesterday while the GBP/USD leveled off near 1.6015. An uptick in US private sector employment yesterday added to the risk-taking sentiment by most investors. Should today's Non-Farm Payroll (NFP) data continue this trend of optimism, we may see the greenback taking severe losses against its rivals as traders seek out higher yields.
Most significant on today's calendar will be the US publication of its Non-Farm Payrolls (NFP) data. Should today's news foreshadow a modest growth in the largest economy's employment sector, an assessment that seemed nigh impossible just days ago, there is a possibility that more investment will get pushed towards the higher yielding EUR, driving USD values lower.
EUR - European Central Bank Raises Key Interest Rate
The euro (EUR) was seen trading bullish yesterday after an announced increase to its regional Minimum Bid Rate by 25 basis points to 1.50%. The statement released shortly after the release gave cause for optimism among investors as ECB President Jean-Claude Trichet hinted that the region's debt concerns were not as dire as many had assumed; specifically mentioning woes regarding Portugal and its recent ratings downgrade by Moody's.
The EUR/USD was seen moving strongly bullish yesterday as a result of the risk taking sentiment that arose from the rate adjustment. The price moved from its recent low of 1.4250 to as high as 1.4375 before leveling off mildly. The EUR saw similar gains between 0.2% and 0.6% against its other currency rivals.
Europe's economic calendar today will be significantly lighter than it has been of late. A string of reports on German and French trade and budget balances, respectively, will get published early in the morning. An Italian industrial production figure will be then released shortly thereafter. Most serious investors are focusing their attention on the American release of Non-Farm Payrolls, the most impactful news event affecting this week's economy.
AUD - Aussie Employment Surprises with High Growth
The Australian economy released strongly bullish news yesterday morning with the publication of an employment indicator that showed the economy adding over 23,000 jobs over the past month. Despite a rate hike in China pulling strongly down on the value of the Aussie Wednesday and Thursday, this morning's movement appears to favor stronger risk seeking behavior among investors and yesterday's surprisingly high growth in Australian employment has many traders moving back towards the Australian dollar (AUD).
Weakening commodity prices may still pull on the nation's economic growth and the AUD's meteoric rise has gouged Australia's exports. While the downturn may look dismal from afar, runaway inflation caused by the Aussie's rise was expected to cut into the country's growth projection eventually. As traders adjust their portfolios and risk assessment for the Land Down Under, the possibility exists for a solid uptick later in the year. For now, heightened risk taking is pushing the value of the Aussie higher and today's US NFP data will either confirm or deny this new momentum.
Oil - Crude Oil Prices Flirting with $100 a Barrel
Crude Oil prices found solid support Thursday, moving towards $100 a barrel in late trading as sentiment appeared to favor a mild growth in global industry alongside a potential uptick in demand for the black gold. Data releases out of the UK and Europe yesterday were driving many investors back into riskier assets as most reports suggested growth among the major industrial nations of the West would be on the rise. If proven accurate, the new outlook would have oil prices rising back into a bullish channel as demand increased.
As investors seek risk, the value of crude oil, which was seen fluctuating wildly all week, may in fact rise to a weekly high above $100 a barrel before today's close. A sudden drop in dollar values due to this week's sudden return to risk is expected to drive many investors into higher investments on physical assets; driving oil prices even higher. Should Crude Oil sentiment hold steady today, oil prices may see another meteoric rise similar to the spike that occurred in 2008 just before the global economy crashed.
A bullish engulfing pattern on the weekly chart does not bode well for further declines in the pair. Combined with rising weekly and daily stochastics, a case can be made for additional gains in the EUR/USD. The first resistance level the pair should face is 1.4700 off of the June high and a move above here and the pair would encounter selling pressure at the May high of 1.4940. Should the pair fail to move outside the upper line of the triangle consolidation pattern at 1.4515 the EUR/USD would encounter support at 1.4440 and the lower leg of the triangle which comes in at 1.4130.
The monthly chart shows potential declines for sterling. Falling stochastics point to additional losses in the pair. Traders could be looking for the GBP/USD to decline to 1.5650, a level that offers long term support. Both the 20-month moving average comes in near this area but more importantly this is where the falling trend line from the 2007/2008 highs comes in and sterling could see a technical bounce in this area. This level has further significance as it coincides with the October 2010 lows on the daily. To the upside resistance is found at 1.6150, the top of the current consolidation pattern as well as the previous trend line from the May 2010 low at 1.6280.
A triangle consolidation pattern has formed on the daily chart with the legs forming from the May high and the June low. Judging from the long term trend the USD/JPY would be expected to break lower where support comes in at 80.25. A break here would likely test 79.70 and 79.55. However, a move higher may also be in the cards and a break above the initial 81.10 resistance would target 81.75.
After forming a base near the 0.8300, the pair has risen to test its falling trend line from the February high which comes in at 0.8535, not far from the resistance level at 0.8550. Further resistance awaits the pair as the 50-day moving average. A breach here and the pair could unravel to the mid-May low at 0.8750.
The Wild Card
After finding support at its 50-day moving average near 1.0660, the Aussie dollar is currently pressing its short term resistance at 1.0790 off of the July high. Forex traders should note that a move higher will go on to test resistance at 1.0890 from the May 11th high, followed by the all-time high at 1.1010.
|10:37||GBP||10-y Bond Auction||2.70|1.8||*||2.57|1.7|
|14:45||USD||Flash Manufacturing PMI||55.8||55.7||-|
|15:00||USD||Existing Home Sales||5.04M||5.01M||-|
|15:00||USD||Philly Fed Manufacturing Index||23.9||20.3||-|
|15:00||USD||CB Leading Index||m/m||0.3%||0.6%||-|
|15:30||USD||Natural Gas Storage||78B||83B||-|
|ALL||Jackson Hole Symposium||*||*||*|