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Thursday, 8 Jan 2009
Our Recession: Weakening Employment Data and Interest Rate Cuts
Yesterday's ADP Non-Farm Payroll figure in the U.S. indicated a spike in unemployment that may be much higher than nearly anyone expected. As the U.S. economy abandons some of its previous euphoria about exiting this recession early, Europe prepares itself for a landmark news day. The Bank of England is forecast to cut its Interest Rates by 50 basis points and the Euro-Zone will be welcoming Slovakia to its membership.
USD - Bleak Employment Forecasts Weaken USD
The U.S. Dollar weakened during yesterday's trading session, correcting the sharp gains against the EUR and JPY seen earlier this week, as steep job losses in the private sector rekindled fears of a prolonged U.S. recession. The USD pushed back from nearly one-month highs against the EUR and five-week peaks versus the Yen. Investors appear to be locking in gains, including central bank EUR buying at lower levels for reserve management purposes.
The Automatic Data Processing (ADP) organization published its Non-Farm Employment Change forecast yesterday. The figure released predicted that an additional 693K individual will have filed for unemployment for the first time in the U.S during the month of December; indeed a heavy blow to the U.S. economy.
As a result, it has had a devastating effect on the Dollar. It should also be taken under consideration that in November alone 476K people lost their jobs and the continuation of these results is a clear sign that the U.S economy is far from pulling out of this recession. It may even be extending its poor outlook on a daily basis.
As for today, the leading U.S. data will be Unemployment Claims. The survey is expected to claim that 545K individuals have filed for unemployment insurance for the first time during the past week. Such a result will be a direct continuation of the recent troublesome figures delivered lately from the U.S. economy and is threatening to hurt the USD. Traders should follow it closely, as any crucial information might ignite a new trend in the market.
EUR - Weak USD and Excitement over Slovakia's Membership Push EUR Higher
The EUR finished yesterday's trading session with mixed results versus the major currencies. The 15-nation currency saw gains versus the greenback for most of the day and closed at 1.3600. Versus the JPY, the Euro-Zone currency range-traded throughout most of the day, as most of the market movement from yesterday was focused on the greenback. In addition, yesterday was a slow news day in Europe as there was one major economic indicator published.
The German Unemployment Change indicator registered a significant rise in December, increasing to 18k unemployed from 4k last month; its lowest reading since February 2006, signaling an end to a three-year labor market boom as the global credit crisis hits companies in Europe's largest economy. As a result, the head of the Federal Labor Office warned that labor markets would soon feel the impact of the economic downturn.
Looking ahead to today, the most important financial indicator scheduled to be released from Europe is Germany's Factory Orders. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement, as a stronger than expected result may continue to bolster the EUR. Also important to watch today will be ECB President Jean-Claude Trichet's speech at the ceremony which welcomes Slovakia to the EUR, transforming the Euro-Zone currency into a 16-nation currency.
JPY - Yen Expecting Small Gains despite Global Economic Weakness
The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session at around the 126.00 level. The JPY also saw bullishness against the USD as it jumped around 100 points and closed at 92.70.
The low Japanese interest rate helped hold the value of the JPY lower than other currencies as traders used the JPY to fund the purchase of higher yielding assets. However, with global interest rates being slashed, the value of these carry trades have declined and traders have been unfolding them in exchange for more safe-haven investments.
Today, the JPY will be absent from the economic calendar, and traders should follow overseas events in order to determine the JPY's direction for today. Special attention should be given to the U.S. Unemployment Claims figure that will be published at 13:30 GMT, and will be today's leading publication that will affect the Yen's crosses.
Oil - Oil Prices Resume Sliding despite U.S Crude Inventories Report
Oil prices slid 12% during yesterday's trading session, the largest percentage drop in 7 years. This drop came after a U.S. government report showed Crude Oil inventories rose more than expected in the world's top energy consumer.
Two days ago, Crude Oil reached a five-week high because of the conflict between Israel and Hamas, Russia's gas dispute with Ukraine, and signs that OPEC members were enacting supply cuts. It later fell as manufacturing data indicated the U.S. recession is deepening. The price of Crude Oil starts to slide again after a $10.00 increase in price in the last three days; this has proven to not be strong enough to reverse the downward trend.
The daily charts show quite a wide range-trading with no specific direction. The Slow Stochastic of the 4-hour chart is showing a strong bearish momentum, and the RSI confirms that the direction is indeed down. On the hourly chart however, a bullish cross of the Slow Stochastic oscillator indicates an upcoming test of the 1.3800 level once again.
The Cable is in the middle of a very intensive uptrend that started 3 days ago and shows great momentum that on a bigger scale appears to have more room to run. The Slow Stochastic bullish cross on the hourly chart indicates that there is still plenty of steam left in this bullish move. Once this pair breaches the 1.5150 level it's likely to make another sharp break upwards.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4-hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
After peaking at the 1.1286 level, the pair is dropping consistently and is now traded around the 1.0992 level. Currently, Slow Stochastic and RSI oscillators on the hourly charts are pointing down, it seems that the bearish movement could extend. Going short appears to be the preferable choice today.
The Wild Card
There is still a bearish configuration on the daily chart, indicating that the momentum is still down. The Slow Stochastic flows high supporting the notion that there is still room to run for this trend. In the shorter time frame there is a bullish cross forming on the hourleis indicates that there might be a small bullish correction before the bearish move resumes. Forex traders can maximize profits by selling on highs and taking advantage of a currently bearish trend.