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Friday, 12 Aug 2011
Is the US Employment Sector Improving?
July's ADP and NFP employment reports, released last week, both showed drastic increases in job creation, with ADP's private sector data showing 14 consecutive months of growth. Yesterday's weekly unemployment claims figure seems to be continuing this trend with only 395,000 people filing for unemployment benefits, beating forecasts by approximately 10,000 claims.
USD - US Dollar under Pressure from Soft Data
The US dollar was seen trading moderately lower yesterday as traders began to reevaluate the recent flattening out in USD values. The EUR/USD was seen garnering support near 1.4150 yesterday and jumping towards 1.4300 in late trading. The greenback saw similar movements against most other currency pairs as well.
A short series of data released yesterday painted a relatively weaker picture for the US economy's growth. Weekly unemployment claims saw a better than forecast rise, hitting 395,000 for the past week; perhaps the only positive news over the past seven days. A trade balance report showed a widening deficit, significantly exceeding expectations. So far the news has helped drive the USD lower as traders seek out other assets.
With a heavy news day expected Friday, dollar traders should be anticipating some exciting currency movements brought about by heightened liquidity. The economic calendar will be focused on the US with several reports on retail sales and consumer confidence. The greenback is intensely in focus among investors today as we conclude an intense week of rollercoaster volatility.
EUR - EUR Tracks Declining Stocks
The euro was seen trading lower yesterday in light of data releases suggesting stagnation in the German wholesale sector. The lackluster performance of global stocks also drove many regional investors away from the EUR despite the relative potential is has for making gains should more investment flee the United States. The euro was, however, seen climbing against its American counterpart in late trading yesterday.
While growth variances between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appeared positioned to lose as traders turned away from risk. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and JPY as the week comes to a close, though investments in US Treasuries contradict the idea behind the recent ratings downgrade by S&P.
As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias further leaning to the downside. The euro zone will be publishing several economic events on today's calendar. Traders should try and follow the significant publications emanating from the US and euro zone economies today as a heavy string of reports are expected from both.
JPY - JPY Seen in Ascent as Traders Seek Store of Value
The Japanese yen (JPY) was seen trading higher versus most other currencies this week after news began to shift many traders back into safe-haven assets. The yen has been a top performer these past several months considering many traders bank on the Japanese carry trade during times of intense risk appetite and move towards the JPY in times of risk aversion, making it an appealing currency in these recent times of ominous debt talks.
The JPY was in a position to make solid gains yesterday after debt auctions in Italy moved many investors away from the euro zone and into safer assets. Moves toward riskier currencies halted as pessimism took hold and drove much of yesterday's trading liquidity towards traditional stores of value. As such, traders appear to be anticipating an uptick in the JPY prior to this week's close.
Oil - Oil Price Floats near $86 a Barrel
Crude Oil prices sunk mildly yesterday, reaching near $85.50 in late trading. Growth differentials between the Atlantic states have risen into view this week while manufacturing output and service data revealed mild weakness in Europe. This has so far led several large investors and analysts to consider a shift away from the EUR and other risky assets in exchange for the safety of the USD and JPY, despite the inherent weakness growing in the American economy due to the recent ratings downgrade.
As investors sought safety, the value of crude oil, which has been seen dropping through most of the week, continued to fall slightly towards $85.50 a barrel. A sudden slump in dollar values due to this week's risk sensitive environment has helped many investors move hesitantly away from assets like gold and silver, and crude oil also appears touched by this sentiment. Should Crude Oil prices hold steady this week, we could see some gains going into the week's final hours, but longer term outlook appears to remain bearish.
An opening gap higher on Monday morning took the pair above its current downward sloping channel that contained the EUR/USD since late July. Selling into EUR/USD gains may be the right play as the pair has been unable to hold a bid above the 1.45 level. Initial resistance comes in at 1.4540 though a break above the June high of 1.4700 would likely reverse the negative technical tone. To the downside support comes in initially at last Friday's low of 1.4050 followed by the 200-day moving average at 1.3940 and the rising trend line from June 2010 which comes in at 1.3840.
Cable looks to be supported after moving lower and receiving a bounce at 1.6220. This level holds the 55-day moving average and a 38% retracement from the mid- July low to the late July high. Resistance is found at 1.6475 followed by 1.6550. A break here and sterling could test the April high of 1.6750. 1.6220 is initial support followed by the 200-day moving average at 1.6085, 1.6000, and the July low of 1.5780.
The spike higher in the value of the USD/JPY due to Japanese government intervention was short lived as the 80 yen level was eagerly sold into. The pair has retraced 68% of its move from the August low to the post intervention high and may continue to move lower. A previously broken trend line from the late July move lower may be supportive but most likely only a short term pit stop on the way back to the all-time low at 76.25. Resistance is found at 79.50 and the post intervention high of 80.22. An additional round of FX intervention could take the pair to the long term trend line off of the 2007 high which comes in at 82.00.
Even measures undertaken by the Swiss National Bank to weaken the Swiss franc have failed to give the USD/CHF a bid. On Monday morning the pair gapped lower to a new all-time low. Momentum is steadily falling and traders may want to continue to hold their shorts. Initial resistance stands at 0.7800 followed by 0.8080 and the downward sloping trend line from the February low at 0.8270.
The Wild Card
Yesterday the EUR/CHF rallied a remarkable 5.5% after reports of a temporary peg to the EUR. Skeptics of the SNB's resolve to fight CHF strength may find this an opportunity to enter the CHF trend at better levels. The appreciation seen yesterday reached as high as the 38% Fibonacci retracement from the July 4th high and forex traders can place a stop above this level at 1.0930 with a target back at the low for the pair at 1.0060.