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Friday, 4 Feb 2011

FX Traders Anticipate US Non-Farm Payrolls

The euro came off its recent highs following dovish ECB comments and strong employment data from the US. If yesterday's economic data is any hint of today's payroll numbers, the dollar rally may prove to have legs.

EUR/USDGBP/USDUSD/JPYUSD/CHFAUD/USDEUR/GBP
Daily Trenddowndownnoupupdown
Weekly Trendnoupdownnoupdown
Resistance1.37151.621582.350.95551.02600.8530
1.36951.619582.150.95351.02400.8510
1.36651.616581.850.95051.02100.8480
Support1.36051.610581.250.94451.01500.8420
1.35751.607580.950.94151.01200.8390
1.35551.605580.750.93951.01000.8370

Economic News

USD - Dollar Mixed After Strong US Economic Data

The greenback did not see a fluent direction in the market on the back of better than expected US economic data.

The US trading session was filled with strong economic reports that saw US unemployment claims fall to 415K from 457K for the previous week. Economists had expected 420K new jobless claims. ISM Non-Manufacturing PMI was significantly stronger, up to 59.4 after an expected 57.4 mark. Any reading above the 50.0 level represents growth in the economy. US factory orders also unexpectedly rose by 0.2% on expectations of a 0.2% decline.

Strong economic data combined with the ECB interest rate decision had the USD mixed versus the majors. Versus the euro the dollar saw its strongest gains of the new year. The EUR/USD closed the day down at 1.3625 from 1.3794. The GBP/USD finished the day lower but not before the pair pushed near a three month high at 1.6277 and the pair ended at 1.6140 from 1.6184. The AUD/USD was trading firmer at 1.0170 from 1.0103.

The market's attention will now shift to the all-important US Non-Farm Payrolls report which is due out today at 13:30. Economists forecast the US economy added 138K new jobs in the month of January but the unemployment rate is expected to rise from 9.5% from 9.4%. Strong employment data from the US may have significant ramifications on the dollar and the Feds outlook on the economy. Should better than expected non-farm data show an improving employment scenario, the Fed may begin to pull back on their loose monetary policy which would be a positive for the dollar.

Initial support for the EUR/USD comes in at 1.3570, followed by 1.3500. Resistance is located at this week's high of 1.3860.

EUR - Euro Falls On Trichet Comments

The European Central Bank left their benchmark interest rate steady earlier today at 1.0% while the euro sold off following the announcement and the selling picked up speed during the Q&A session with ECB President Jean Claude Trichet.

During the comment session, Trichet told reporters risks to the economic outlook remain tilted to the downside while the medium term outlook for inflation is balanced but could move higher. The selling of the euro intensified following Trichet's comment that interest rates remained at an appropriate level and the recent data has not changed the assessment by the ECB.

The euro was sold across the board yesterday with the EUR/USD falling as low as 1.3608 before recovering to 1.3625. The pair opened the day at 1.3795. The EUR/CHF was also down sharply at 1.2887 from 1.2971.

As traders' expectations for an interest rate increase in the euro zone get pushed back further into the future, the value of the EUR/USD will decline. However, expectations remain for rising European rates. The next meeting for the ECB could spur further euro gains, as could an extension of the Federal Reserve's loose monetary policy.

JPY - Yen Continues to Strengthen

The yen saw high volatility yesterday, influenced by strong US economic data and the ECB interest rate decision. However, the pair ended the day near its opening price.

The USD/JPY traded at one point in the day as high as 82.05 before ending the day down slightly at 81.55. The pair began yesterday trading at 81.63. Better than expected employment and non-manufacturing data had the yen on its back foot as the dollar began to strengthen. However, towards the end of the day the gains in the pair failed to hold. A similar situation arose following the downgrade in the sovereign credit rating of Japan last week.

The inability of the USD/JPY to make new highs does not bode well for the pair and the bias is to the downside. Support for the pair is found at 81.30, followed by the December low of 80.90. Resistance is located at yesterday's high of 82.05 and the January 27th high at 83.20.

Oil - Crude Could Rise On Positive Employment Numbers

Spot crude oil prices dipped yesterday following a rising dollar. Traders remain focused on economic data and geopolitical events in the Middle East.

The price of spot crude oil ended the day at $90.75 after an opening day price of $91.34. The commodity traded as low as $90 but held at the support level.

Influencing traders to sell the commodity was stronger than expected US employment data as well as better US factory order numbers. This helped to push the dollar up, making crude oil prices more expensive for those that hold currencies other than the dollar.

Crude prices have undergone a period of higher than usual volatility following the outbreak of mass protests in Egypt which sparked close to an $8 rally. However, spot crude oil prices failed to move above its previous high of $93.00

Today crude prices will be influenced by the release of US Non-Farm Payrolls. Better than expected employment data may provide traders with a reason to reverse yesterday's declines in the price. Support for spot crude oil is found at $90.00 and $87.00. Resistance is located at the $93 level.

Technical News

EUR/USD

The two day decline in the value of the EUR/USD looks to have found support at a rising support line underneath the late January lows. This may be an opportunity to enter long on the pair with a first target at this week's high of 1.3860.

GBP/USD

The pair is currently testing the resistance level of 1.63, a price last seen in November. A breach of this level would then set the stage for a test of the 2010 high of 1.6460.

USD/JPY

The inability of the USD/JPY to make new highs does not bode well for the pair and the bias is to the downside. Support for the pair is found at 81.30, followed by the December low of 80.90. Resistance is located at yesterday's high of 82.05 and the January 27th high at 83.20.

USD/CHF

With only minor divergences, the pair has consistently traded below the downward sloping trend line off the May 2010 high. Currently the price has reverted back to this trend line, making for a possible entry opportunity short with a target the swing low at 0.9300.

The Wild Card

Crude Oil

Following an almost $8 gain in crude oil prices, a bullish flag pattern has formed on the daily chart. The chart pattern suggests forex traders may target the $98.40 level should a breakout occur to the upside.

Current Time: 08/22 09:18 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
08/22
13:30CAD+ Core CPI m/m-0.1%0.0%-5
13:30CAD+ NZD Core Retail Sales m/m0.1%0.6%-5
13:30CAD+ CPI m/m0.1%-0.1%-3
13:30CAD+ Retail Sales m/m0.7%0.6%-3
15:00USD+ Fed Chair Yellen Speaks***5
19:30EUR+ ECB President Draghi Speaks***5
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