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Friday, 1 Feb 2008
Non-Farm Payrolls On Tap
The US Dollar traded with mixed results yesterday as another day of economic data left a cloud over the straining US economy. Today we look ahead to critical US data, namely Non-Farm Payroll, which should map the direction the dollar will take after a week of important economic data. After the 50bp rate cut from the Federal Reserve earlier this week, investors shifted focus toward the greenback.
Yesterday saw the release of a basket of key news events from the US that shaped the day's trading behaviors. Core PCE Price Index, ECI, Personal Spending, and Unemployment Claims were all released at 13:30 yesterday within expected forecasts. Unemployment Claims returned at 375K, rising by just under 70K to reach its highest level since October 2005. Finally, to end the US news day Chicago PMI returned with less than stellar results, but did not have a big affect on the day's trading.
Today Non Farm Payrolls is on tap. It will play a huge roll in determining the effectiveness of the 150bp accumulated rate cut since the last payrolls were released. Fed Chairman has noted on several occasions that the Labor market was an important part of the economic slowdown. Early indications put the payroll figure at just under 70K, which according to many investors will not be enough to revamp the greenback. More importantly for the short term is that the other key dat figures set to be released today are all dollar negative. Consumer sentiment, manufacturing ISM, construction spending and average hourly wages are all set to return with negative results, as they represent the more unstable sectors of the US economy.
If Non Farm Payrolls returns with greater gains than initially forecasted, we should see a steady rise in the dollar in the short term.
The EUR traded relatively stable versus the greenback yesterday and it only slipped slightly on the back of the monthly European Commission survey which indicated that economic sentiment dropped to 101.7 points and Euro zone inflation has reached an all-time high during last month. This important data emphasizes that the European Central Bank's monetary policy is facing a problem. The ECB will struggle to balance economic growth and keep inflation within target.
Consumer's confidence fall to -12 from -9 points and other data showed that December unemployment in the Eurozone was unchanged at record lows of 7.2 percent of the workforce. This means that now 11 million citizens are now jobless in the Eurozone, versus 11.8 million 12 months ago.
The main reason for the ECB keeping the interest key rate unchanged is due to the fact that the Eurozone still suffers from the turbulence which exists in the global markets and the lack of liquidity in the financial system attributed by the collapse of the U.S. subprime mortgage market that has made banks unwilling to lend.
By keeping the interest rate on the same level the ECB intends to avoid creating any "unnecessary tension" for the short run. However there is a possibility that the next interest rate adjustment will be made during this month. As long as the ECB keeps making tough comments with regards to inflation the outlook for the EUR will remain bright.
Looking ahead to today, the only news expected from the Eurozone will be the German and Eurozone Manufacturing PMI figures, which are forecasted to remain unchanged. However today all eyes will shift towards the key NFP report and EUR movement today will remain dollar centric.
The JPY has begun to see resumption of carry trading, as investors slowly look to take on risk ahead of today's NFP. The Dow Jones rose 200 points yesterday adding to speculation that the drive to purchase risky assets with JPY is slowly returning. Some investors however seem weary of adopting carry trade methods just yet, as the market place is still very volatile.
The return of risk appetite by investors shows that traders are expecting a strong NFP report. Yesterday saw two economic events from Japan, as Average Cash Earnings and yearly Housing Starts figures were released below initial expectations. Do to the importance of the news from the US economy those figures had little to no affect on JPY movement.
JPY traders will be looking closely to the NFP data released today for an indication of stability within the US economy. Until such stability is found, carry trading and therefore the JPY will suffer.
After range trading for most of the day yesterday, the pair now seems to be consolidating around the 1.4860 as the volatility is beginning to decrease. Indicators are giving mixed signals although there is still a lot of positive momentum. Traders should wait for a clear signal on the hourly level before entering the market today
There is another bullish channel forming on the 4 H chart and this pair now seems to be heading towards the top of this channel. Bollinger bands are tightened indicating decreased volatility. There is still steam left in yesterday's bullish move so this pair should target the 1.9950 level today. Buying on dips will be the preferable strategy today.
This pair has been bouncing between the 105.00 and the 108.00 over the last two weeks and it now seems that it will begin to trade in a tighter range. Traders can expect this pair to remain between the 106.00 and the 107.00 today, however there will be a sharp breakout soon.
This pair is still in the middle of a very steady downward channel. RSI and Momentum are still negatively sloped indicating some bearish movement today. However if 1.0800 level is breached then the next target price will be 1.0850.
The Wild Card
The bullish move has returned with full power, as Gold now consolidates around 930.00. All oscillators are in a bullish formation, and forex traders now have a great opportunity to re-enter the very expected move up again towards the 950.00 level. Being on the buy side appears to be very lucrative in the near future.
|23:30||AUD||AIG Construction Index||45.9||-||-|
|08:00||EUR||German Industrial Production||m/m||0.1%||0.6%||-|
|08:45||EUR||French Gov Budget Balance||-85.6B||-||-|
|08:45||EUR||French Trade Balance||-3.4B||-3.0B||-|
|09:00||CHF||Foreign Currency Reserves||498.4B||-||-|
|10:30||GBP||Consumer Inflation Expectations||2.5%||-|
|14:30||CAD||Labor Productivity q/q||q/q||0.1%||0.2%||-|
|14:30||USD||Non-Farm Employment Change||257K||241K||-|
|14:30||USD||Average Hourly Earnings||0.5%||0.2%||-|