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Friday, 1 Apr 2011
Jobs Report Expected to Show Improving US Economy
Today's non-farm payrolls report combined with the ISM Manufacturing PMI are expected to show further improvement in the US economy. With the increase of risk appetite, commodity prices have soared, benefitting the commodity currencies of Australia and Canada.
USD - Jobs Report Expected to Show Improving US Economy
The dollar paired its losses in the New York trading session after the release of worse than expected economic data. For the day, the greenback was mixed against the majors following a slew of negative reports.
US factory orders dropped to -0.1% m/m on expectations of a 0.5% rise. However, the previous month's report was revised higher to 3.3% from 3.1, giving the report a more positive tone. Weekly unemployment claims were higher than expected at 388K while economists had forecasted 379K new jobless claims. Last week's report was revised lower to 394K from 382K, adding to the negative tone of the report. The Chicago PMI declined to 70.6 in March from 71.2 in February. Most analysts had forecasted a decline to 69.9. This is the strongest number from the report since July 2009.
The dollar's performance was mixed as rising commodity prices boosted the commodity-linked currencies while the dollar trimmed its morning losses versus the euro and the pound. The AUD/USD traded at a new record high of 1.0373 and closed the day at 1.0335. The USD/CAD continued to push lower and closed just below the 0.9700 level. The EUR/USD was up above the 1.4200 level again but failed to hold those gains and finished the day at 1.4163. Versus sterling, the GBP/USD rose to a high of 1.6152 from 1.6070 but later fell to a low of 1.6016 and closed at 1.6030.
All eyes will be on two key reports today; US non-farm payrolls and the ISM Manufacturing PMI. Both are expected to show continued improvement in the US economy. The jobs report will be more heavily weighted as the Fed targets improved employment data when setting monetary policy. Given the recent support by Fed officials for the tightening of US monetary policy, the report will be a key influencer on the Fed's decision to keep a loose monetary policy and continue with its quantitative easing program.
Strong job numbers should be dollar negative as this would continue the trend of increasing risk appetite in the markets following the geopolitical events in Africa and the earthquake in Japan.
EUR/USD resistance comes in at last week's high of 1.4250, followed by the November high of 1.4280. A breach of this level would target the January 2010 high of 1.4580. To the downside, support is located 1.4060 off the rising trend line from January. This level also coincides with the 20-day moving average. The weekly low of 1.4020 may also prove to be supportive. A 31.8% retracement from the January low could come into play at 1.3935.
EUR - Euro Climbs Against the Yen and Swiss Franc
The euro continues to climb, supported by expectations for an increase of interest rates next week by the ECB. Further support was given for an interest rate hike following the release of the German unemployment change which showed the number of people out of work declined by -55,000 to 3.01M. Economists had forecasted a reduction of only -24,000. The report was also boosted by last month's revision up to -54,000 from -52,000. The improving unemployment picture is surprising given the unstable month that passed as the geopolitical events in Africa and natural disaster in Japan did not deter German employers from adding to their payrolls.
Traders were sending strong bids for the euro after higher than expected inflation numbers. The CPI Flash Estimate y/y was higher at 2.6% for the year. Economists had forecasted a 2.4% increase. The rising inflation numbers reinforces the market's view for an ECB rate hike at its next meeting April 7th and should bring further bids to the euro.
The EUR/JPY continued to climb, rising sharply to close near its high of 118.60 from an opening day price of 116.82. The pair is quickly closing in on its short term target at 119.60 with an extension possible to 128.00. Support is found at 116.00
The EUR/CHF made a close at 1.0344, above the previous resistance at 1.3038. The pair should encounter selling at the 200-day moving average which comes in at 1.3070. Strong resistance is located at the February high at 1.3200. A breach here would target 1.3670 and 1.3830. To the downside, support is at 1.2820 followed by 1.2730.
JPY - Yen Continues to Weaken
The JPY is on its back foot versus the dollar and the euro as the currency continues to weaken following the G7 intervention and a renewal of the carry trade. As risk sentiment improves, traders have been quick to sell both the dollar and the yen as funding currencies for carry trades, helping to push the yen lower.
Yesterday the USD/JPY closed higher at 83.71 from an opening day price of 82.56. The close made significant headways on the charts, closing above the first resistance level at 83.30 above the falling trend line off of the September high.
Momentum has swung to the upside as the monthly chart shows both rising stochastics and increasing momentum. The monthly candlestick also closed on a hammer pattern, indicating further gains in the pair may be in store. Resistance comes in at 84.00. A breach above this level will target 84.60, followed by 85.90. To the downside, the previous trend line should be supportive at 83.35, followed by 82.55 and 82.00.
OIL - Crude Hits 2 1/2 Year High Amid Mid East Unrest
Violence in Libya, coupled with the aftermath of the devastating earthquake in Japan, continue to elevate the price of crude oil. On Thursday, the commodity hit a 2 1/2 year high, peaking at $107.62 a barrel before staging a very slight downward correction. Currently oil is trading at $106.85.
Analysts are warning that the price of oil is unlikely to come down in the near future, and may even continue to rise. As for today, heavy fluctuations are anticipated following the release of this month's US Non-Farm Payrolls. The employment figure is considered one of the most important economic indicators on the forex calendar, and consistently generates heavy volatility. Today's figure is expected to come in at 191K, slightly less than last month. If true, it would signal further growth in the US employment sector which could result in further bullishness for oil.
The EUR/USD pair climbed about 1,300 pips in the past 10 weeks, and it seems that the bullish momentum has the potential to proceed. Currently a rounding bottom patterns appears to be forming on the 4-hour chart, suggesting that the pair might reach as high as the 1.4250 level before the week ends. Going long seems to be the right choice today.
The cable's range-trading pattern continues and the pair is now trading near the 1.6050 level. Currently, a bullish cross takes place on both the 4-hour and the 1-day charts' Slow Stochastic. It appears that a bullish session might be expected today. Going long could be the right strategy today.
Momentum has swung to the upside as the monthly chart shows both rising stochastics and increasing momentum. The monthly candlestick also closed on a hammer pattern, indicating further gains in the pair may be in store. Resistance comes in at 84.00. A breach above this level will target 84.60, followed by 85.90. To the downside the previous resistance at 83.30 will turn into a support line, followed by 82.00 and 80.20.
There is a very distinct bullish channel formed on the 4-hour chart, and the pair is currently trading in the middle of it. Nevertheless, as both the Slow Stochastic and the RSI on the daily chart are providing bearish signals, it seems that a bearish correction might take place today, with potential to reach the 0.9100 level.
The Wild Card
Crude oil's bullish trend appears to be unstoppable and crude yesterday reached as high as $107.60 a barrel. In addition, as all technical oscillators on the 8-hour chart provide bullish signals, it seems that another bullish session may be impending. This might be a great opportunity for forex traders to join a very popular trend.
|00:00||JPY||Monetary Policy Statement||-||-||-|
|00:00||JPY||BoJ Press Conference||-||-||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.6%||2.5%||-|
|00:30||JPY||National Core CPI||y/y||3.1%||3.0%||-|
|01:05||GBP||GfK Consumer Confidence||-1||0||-|
|01:30||AUD||Private Sector Credit||m/m||0.4%||0.4%||-|
|07:00||JPY||BoJ Outlook Report||-||-||-|
|08:00||EUR||German Retail Sales||m/m||2.5%||-0.8%||-|
|08:45||EUR||French Consumer Spending||m/m||0.7%||-0.3%||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|