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Monday, 9 Aug 2010
Negative NFP Release Weakens The Dollar Vs. The Majors
Following a relatively calm trading week, the U.S. Non-Farm Payrolls data managed to boost volatility in the market, bringing down the U.S. dollar in the process. The dollar fell to an 8-month low against the yen and to its lowest level against the euro since May. The main question now is whether the dollar will continue to slide, or will a correction take place?
USD - Dollar Tumbles Following Disappointing Employment Data
The U.S. dollar fell against most of its major rivals during last week's trading session. The dollar lost about 300 pips vs. the euro and about 400 pips against the British pound. The dollar saw bearish movements against the yen as well.
The dollar's downtrend against most of the major currencies came as a result of disappointing data from the U.S. economy. The U.S. housing sector saw further negative data after the Pending Home Sales report was published. The report showed that the number of home sales set to be finalized declined by 2.6% in June, failing to reach expectations for a 0.5% rise.
The dollar's bearishness was further reinforced on Friday, after the release of the U.S. employment data. The U.S. Non-Farm Employment Change report showed that the number of employed people during July, excluding the farming industry, dropped by 125,000, failing to reach expectations for a 106,000 decline. The news emphasized the uncertainty regarding the current U.S. employment situation, and has led to questions regarding the U.S. economic recovery.
Looking ahead to this week, many interesting publications are expected from the U.S. economy. The release which is likely to have the largest impact on the market looks to be the Federal Funds Rate, which is scheduled for Tuesday. The Federal Funds Rate is in fact the U.S. interest rates for August. Traders are also advised to follow the U.S. Trade Balance, the weekly Unemployment Claims and the Consumer Price Index.
EUR - Euro Raises against the Dollar; Sees Mixed Results Vs. The Pound and the Yen
The euro saw mixed results vs. the major currencies during last week's trading. The euro gained about 300 pips against the U.S. dollar. As such, the EUR/USD pair reached its highest level since May. However against the British pound and the yen the euro failed to strengthen, and mainly saw ups and downs.
The main reason for the euro's gains vs. the dollar seems to be the general weakness of the American economic recovery. Due to several negative economic releases from the U.S. economy, especially the Non-Farm Employment Change, the dollar fell against all the major currencies, including the euro.
Nevertheless, the euro continues to trudge vs. the rest of the major currencies as the economic condition of the euro-zone remains vague. While many reports claim that the European Central Bank will manage to recover from the sovereign debt crisis, the economic data being released from the euro-zone's leading economies fail to support that theory. In addition, the ECB continues to keep the euro-zone's interest rates at a record low of 1.00%. ECB President Trichet claims that the euro-zone economies are growing. At the same time, his decision to leave rates at a record low sends mixed signals to investors, which leads to the many fluctuations in prices.
As for the week ahead, traders are advised to follow the publications from the leading economies of the euro-zone, such as Germany and France. In particular, traders should follow the German Preliminary Gross Domestic Product (GDP) report, scheduled for Friday. The GDP measures the change in value of all goods and services produced by the economy, and its publication is likely to have a large impact on the euro.
JPY - Yen Rises To an 8-Month High against the Dollar
The Yen rose to an 8-month high vs. the U.S. dollar during Friday's trading session. The Yen gained about 200 pips against the dollar last week, and the USD/JPY pair dropped as low as the 85.00 level. The Yen saw mixed results vs. the euro and the British pound.
The yen strengthened vs. the dollar following disappointing data from the U.S. economy. The Non-Farm Payrolls report, which was released on Friday, showed that the amount of employed people in the U.S. has dropped for the second month in a row in July. In addition, this has added to concerns that global economic recovery might take longer than expected and as a result boosted demand for safer assets, such as the yen.
As for this week, a batch of data is expected from the Japanese economy, yet the most interesting economic publications look to be the Overnight Call Rate. The Overnight Call Rate is the Bank of Japan's (BoJ) interest rates decision for August. Current expectations are that the BoJ will leave rates at 0.10%, the lowest in the industrial world. However, should the BoJ decide to hike rates, heavy volatility could hit yen pairs.
Crude Oil - Crude Oil Drops To $80 a Barrel
Crude oil saw a volatile session during last week's trading. Crude oil began the week at around $79 a barrel, and by midweek rose to $83 a barrel. However by the weekend, oil erased most of its gains, and was trading around the 80.00 mark.
Crude oil fell to $80 a barrel on Friday following the lower-than-expected U.S. Non-Farm Employment Change data. The disappointing data boosted concerns that demand for energy in the U.S, the world's largest consumer of energy products, will decline. It currently seems that as long as the U.S. and the euro-zone do not show stronger signs of recovery, crude oil might weaken further.
Looking ahead to this week, traders are advised to follow the major economic publications from the U.S. and the euro-zone. Traders should also focus on the U.S. Crude Oil Inventories report, which is scheduled for Wednesday, as this report tends to have an instant impact on the market.
The Stochastic Slow on the daily chart shows a bullish cross has formed, indicating that a downward correction may take place in the near future. The Relative Strength Index on the 4-hour chart supports this theory. Traders are advised to go short on their positions today, as bearish movement is expected.
Technical indicators are decidedly mixed for the pair at the moment. While the Relative Strength Index on the daily chart is currently well into overbought territory, the Stochastic Slow on the 8-hour chart is showing a bearish cross has formed. Traders are advised to take a wait and see approach today, as a clearer picture is likely to present itself later on.
Most technical indicators show the pair currently trading in neutral territory, which typically means that no major movement will occur today. At the same time, a bearish cross has formed on the 4-hour chart's Stochastic Slow. Traders will want to watch out for a possible upward correction for the pair this afternoon.
Technical data is showing the pair trading in neutral territory at the moment, meaning a major price shift is unlikely to occur today. That being said, during these low volatility periods, unexpected movement may occur. Traders are advised to take a wait and see approach for the pair today.
The Wild Card
The RSI on the 8-hour chart shows the commodity trading well into overbought territory, meaning a downward correction is likely to take place. The Stochastic Slow on the daily chart supports this theory. Forex traders are advised to go short with tight stops in their positions today.
|13:30||USD||Non-Farm Employment Change||204K||180K||203k|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||0.2%|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||0.1%|
|14:55||USD||Prelim UoM Consumer Sentiment||75.1||76.2||-|
|14:55||USD||Prelim UoM Inflation Expectations||2.9%||-||-|
|20:00||USD||FOMC Member Evans Speaks||*||*||*|