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Thursday, 3 Jul 2008
Non-Farm Payrolls On Tap As EUR/USD Test 1.60?
Yesterday the greenback saw mixed results against most of its currency rivals. The USD fell to a two-month low against the EUR after the ADP reported that Non-Farm Employment in the US will fall hard in June. The EUR/USD pair rose just above 60 points yesterday ending the trading day at 1.5859. Versus the JPY the USD fell to 106.05 from 106.68, and after gaining some ground versus the CHF in the early part of the day going as high as 102.30, the greenback ended up losing 100 points closing just above 101.30 .The dollar did pick up points yesterday as the GBP/USD pair fluctuated between 1.9926 and 1.9850 after a scare in the housing sector in the UK when housing shares fell broadly shaking prices and confidence.
The ADP report looks to be the real indicator of what today's movement will likely be, as the numbers show that there was a loss of 79k jobs in June, far more than the expected loss of 20k jobs. Last month's surprise report of 40k jobs created was also revised to show that only 25k new jobs were actually created. Also yesterday, the US Treasury Secretary Henry Paulson in a speech regarding global markets said that the current crisis was caused by bank compensation packages, which rewarded success but didn't punish failure. He pointed out the necessity for the government to let major financial institutions deal with issues on there own, without the immediate intervention of larger governing bodies in order to sustain a free market environment. His comments sparked even more volatility to yesterday's fluid Forex market.
Today is a huge news day for the USD, headlined by Nonfarm Employment Change. The ISM Non-Manufacturing Composite and the Unemployment Rate will also be released today and should impact the USD as well. Nonfarm numbers are currently forecasted to have dropped by an extra 11K from May's mark of -49K. The move will mark the sixth consecutive month that this critical measurement of the US economy has fallen. ISM Non-Manufacturing Composite, which measures the activity level, new orders, employment and supplier deliveries of purchasing managers in the services sector, is being forecasted to see a reduction from 51.7 to 51.1 while the Unemployment rate is forecasted to improve slightly from 5.4% to 5.5%. The main impact should be caused by the Nonfarm Employment Change and ISM Non-Manufacturing Composite results will likely put the USD in a bearish trend as we head into the holiday weekend.
Yesterday the EUR continued its week long success as it gained against a basket of major currencies. The 15-nation currency rallied to its highest level against the greenback since late April hitting $1.5888 in late New York trading, up from the $1.5793 on Tuesday. Shortly following some poor data from the UK in the early morning session yesterday the Pound hit 23-day lows against the Euro. The bullish Euro trend began in the morning after another strong speech by ECB President Jean-Claude Trichet and continued to gain steam after weak ADP data for the American Economy. The single European currency was also fueled by better than expected Euro Zone producer prices which rose 1.2% compared to April and rose 7.1% annually.
Today, European news will likely be overshadowed by the importance of US data; however Forex traders should keep in mind several events, if mapping the EUR as a trading option. The inflation within the Euro-Zone has reached 4% due to increases inn Oil and food prices, and will likely add to more market speculation surrounding if and when the ECB will raise their interest. Senior ECB officials, including Trichet who remains the most hawkish of them all, have been hinting for some weeks that a rate rise is imminent; he himself warned that inflation could "explode" if the ECB fails to act decisively. All likelihood is that the rate hike will happen today. A rate hike in the EUR, will send the EUR/USD pair even higher, which will in turn send the already record high of $144/per barrel of Crude Oil even higher.
Today, along with the ECB Interest Rates at 11.45GMT, we can expect a press conference at 12.30 GMT where Trichet will discuss the rate decision. Expect the EUR to respond with bullish movement if rates are raised, as we could see the popular EUR/USD pair once again test 1.60.
The JPY saw mixed results against most of its major currency rivals. Vs. the greenback the Yen had a very volatile session as the pair tested bids around the 106.78 level and capped out at around 106.04. Against the EUR, the JPY was 168.20 down from 168.52 in the day prior.
Overall, the Yen rises broadly amid global stock rout. On Tuesday, the Japanese currency benefited from mounting risk aversion as heightened fears of further losses in the banking sector and global stocks prompted investors to sell dollars.
However the JPY gains versus the dollar were limited as the balance now shifted to the Crude Oil's side. In stead of buying Yen, people now prefer the Crude as their safe heaven. Risk aversion in currency markets was also stoked by a slide in global stocks. The JPY tends to garner support in times of heightened risk aversion as investors reverse trades financed by borrowing the Japanese currency at low interest rates.
Today, there is no economic news expected to be released From Japan, however, we should see an active JPY trading in response to key U.S and Euro-zone data releases. The near term outlook for the JPY remains quite bullish as a U.S economic redemption is unlikely to occur anytime soon. Therefore, traders are advised to follow U.S data and Euro Zone news with extra precaution today as they will mark future's JPY behavior.
Yesterday, the Crude Oil rose to a record above $144 a barrel following an unexpected drop in the US Crude Oil Inventories. Oil has surged to records this year partly because investors have turned to commodities as a hedge against the falling dollar. Today's forecasted increase in European Interest Rates, may spur further commodity purchases, especially after the US stocks fell into a bear market. As a result, today we may see the Oil surpassing the $145 per barrel. Breaking this level will be important as the Crude should be reaching $150 within a very short period of time.
There is a very distinct bullish channel forming on the 4 hour chart, as the pair now floats at the middle of it. The Slow Stochastic on the 4 hour chart indicates that the pair should continue its bullish momentum. The Bollinger Bands on the Dailies also show there is still room for an additional upcoming bullish move.
The 4 hour chart is showing that the cable is trading within a tight range and is now heading towards the bottom section of it. All oscillators are floating on neutral territory without a distinct price direction. Traders should wait for a clearer signal on the hourlies before entering the market on the pair.
On the hourlies, the pair has made its bearish breach, and appears to have established a starting point for a relatively strong downtrend. The daily chart shows as well that a bearish formation is intact. A negative slope on the Slow Stochastic validates that notion. Going short seems to be a good choice.
Since the beginning of today's trading session the pair went down a slippery slope, depreciating from 1.0165, down to 1.0131. The hourlies show that the pair has finished its bullish correction and is ready to continue its bearish trend. The Slow Stochastic on the 4 hour chart also supports that notion, indicating that bearish momentum hasn't reached its limit yet.
The Wild Card
The ongoing bullish bonanza continues with no indication of a halt, as the Crude prices have breached the $144 a barrel yesterday. The Slow Stochastic on the daily chart indicates there is still plenty of room for further bullish movement. forex traders may use the strong bullish momentum and swing into the most lucrative trend currently in the Forex market.
|10:30||AUD||AIG Construction Index||54.4||-||-|
|11:15||GBP||Autumn Forecast Statement||*||*||*|
|12:00||GBP||Asset Purchase Facility||375B||375B||-|
|12:00||GBP||Official Bank Rate||0.50%||0.50%||-|
|12:30||USD||Challenger Job Cuts||y/y||-4.2%||*||-|
|12:54||EUR||Minimum Bid Rate||0.25%||0.25%||-|
|13:30||EUR||ECB Press Conference||*||*||*|
|13:30||USD||Prelim GDP Price Index||q/q||1.9%||1.9%||-|
|15:00||USD||Natural Gas Storage||-13B||-||-|
|07:45||EUR||French Gov Budget Balance||-80.8B||-||-|
|07:45||EUR||French Trade Balance||-5.8B||-5.1B||-|
|08:00||CHF||Foreign Currency Reserves||434.7B||*||-|
|09:30||GBP||Consumer Inflation Expectations||3.2%||-||-|