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Monday, 7 Apr 2008
The USD Goes Up Despite Weak Jobs Report
The USD pared its gain against the EUR on Friday as investors digested the U.S. March Unemployment Report and the Nonfarm Employment Change figures. Last Friday's Payrolls hit the -80K mark, marking the biggest decline in 5 years. Unemployment also spurred downside risks for the economy as it rose to 5.1% from 4.8%, and heightening the bearish sentiment for the U.S. economy in general. In fact, Fed Chairman Bernanke acknowledged last week that the economic expansion may slow down significantly, as homebuilding, employment and spending deteriorate. As for the USD, it will probably continue to move lower in the next couple of months, until the U.S. economy improves. Fed Chairman Bernanke, for example, expects a return to trend growth as early as 2009.
Export, is another key economic factor. By now, exports are really keeping the U.S. economy from falling into a much deeper recession. The export boost provided by a weaker dollar, which makes American-made goods less expensive for overseas buyers, is helping to avert a deeper slump in manufacturing. This week's Trade Balance figure may show the trade deficit shrank to $57.5B in March from $58.2B the prior month.
Looking ahead, this week will be quite an eventful one as 3 major central banks - BoJ, ECB, and the BoE will meet to set their monetary policies. On Tuesday, Pending Home Sales are expected to fall, further dragging the U.S. economy down. The Consumer Sentiment report for this month is also expected to drop its lowest in 16 years.
Today, however, we do not expect major price action in the USD as the Consumer Credit index is the only U.S. data to be released. The volatility is expected pick up on Tuesday as the FOMC will release their Minutes report at 18:00GMT.
The EUR declined last week against most of the major currencies on speculation that European economic growth will continue to slow. The single currency dropped 0.4% to the 1.5737 level vs. the USD, from 1.5796 a week earlier.
In the past week, something went wrong with the EUR. Consumer Confidence within the Euro zone has fallen; Consumer Spending is contracting while German factory orders dropped 0.5%.
The ECB is scheduled to meet on Thursday to discuss monetary policy and even though they are not expected to lower Interest Rates, there is a chance that Trichet will officially acknowledge the recent slowdown in growth. If that will happen, the EUR/USD will continue to lose height due to a tumbling sentiment. Given the recent turn in the European fundamental data, the next move by the ECB is a rate cut and the fate of the Euro will be determined by how quickly that happens.
Looking ahead to today, we expect the Euro-zone GDP figures. However the figure is not likely to impact the EUR, which may slip slightly vs. the greenback today as traders exercise caution ahead of tomorrow's U.S. Pending Home Sales report.
Downward pressure on the USD intensified after the U.S. Employment data increased recessionary concerns, and spurred many investors to dump their holding of the troublesome currency. Last Friday, the JPY traded 0.5% higher against the USD at 101.86, but was still on track for its biggest weekly loss since 2004. The reason is the economy.
One should keep in mind that there was a slowdown in Japanese business investment which in all circumstances remains a key driver of the economic growth. To make matters more difficult, Goldman Sachs Investment bank has decided to downgrade the Japanese car manufacturing industry. The bank fears that the major Japan industry might suffer from a decline in U.S. demand. As a result, the JPY will probably continue to lose ground against the USD.
On Wednesday, the Interest Rate Announcement will be followed by the BoJ's Monthly Monetary Report. With interest rates already at 0.5%, there is not much room for the central bank to move.
There is no important economic news expected to be released in Japan, however, today we should see active JPY trading in response to key U.S and Euro-zone data releases. The near term outlook for the JPY remains pretty bearish as a U.S economic redemption is unlikely to occur anytime soon and recession fears will continue to drive risk aversion.
The pair is floating between two key Fibonacci levels and is now showing bearish price movement. The 4 hour chart is showing a distinct bearish cross, and the daily RSI is floating around 50 which indicates that the bearish trend might continue. Next target could be 1.5620.
The bullish trend on the 4 hour chart was stopped by a moderate corrective move which took the pair to the 1.9900 level again. There is a bullish cross forming on the 4 hour chart which indicates that the bullish reversal is quite imminent. Going long with tight stops might be a good strategy today.
There is a very distinct bullish channel forming on the 4 hour chart as the pair now floats in the middle of it. The bullish momentum is back, and the slow stochastic is showing that there is still much more room to run up. Next target price might be 103.10.
The pair has been traded in a range for a while now, and no distinct signal has been received on the daily level. The 4 hour chart is showing mixed signals yet the Bollinger Bands are getting much tighter which indicates on a possible close break. Traders are advised to wait for a significant breach and swing in on any direction.
The Wild Card
After the sharp bearish move which ended at 870.00, gold is now making a bullish comeback and is forming a tight bullish channel on the 4 hour chart. The RSI is strengthening the notion that the bullish move will continue which provides forex traders with a great opportunity to enter the market with a long position at a great entry price.
|13:00||EUR||GfK German Consumer Climate||8.5||8.6||-|
|00:30||JPY||Tokyo Core CPI||y/y||2.5%||2.3%||-|
|00:30||JPY||National Core CPI||y/y||3.0%||2.9%||-|
|00:50||JPY||Prelim Industrial Production||m/m||2.9%||-0.4%||-|
|01:00||NZD||ANZ Business Confidence||26.5||-||-|
|01:05||GBP||GfK Consumer Confidence||-2||-1||-|
|01:30||AUD||Private Sector Credit||m/m||0.5%||0.5%||-|
|08:00||EUR||German Retail Sales||m/m||-3.2%||1.7%||-|
|08:45||EUR||French Consumer Spending||m/m||-0.8%||0.2%||-|
|09:00||CHF||KOF Economic Barometer||99.8||100.1||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.6%||12.6%||-|
|10:00||EUR||Italian Quarterly Unemployment Rate||12.5%||12.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||0.4%||0.3%||-|