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Friday, 5 Jun 2009
U.S. Non-Farm Employment Change Data to Dominate USD Trading
Today's U.S. Non-Farm Employment Change data release is set to dominate the trading between the Dollar and its major currency pairs. A number of other factors are also likely to impact the forex market today, such as European Central Bank Chairman Jean-Claude Trichet's speech at 7:50 GMT, and the U.S. Unemployment Rate publication at 12.30 GMT. The results of today's data are likely to determine the USD's bullishness going into next week's trading.
USD - USD Awaits Today's Non Farm Employment and Unemployment Figures
The Dollar was down against the EUR Thursday after the European Central Bank's (ECB) decision to keep the main Interest Rate at 1.0%. The Dollar Index also slipped to 79.446 from 79.499 on Thursday.
Dampening demand for the Dollar in recent weeks has helped the U.S. stock market rise and global Oil prices jump to near $70 a barrel. Higher stocks have encouraged traders to take their positions out of the Dollar which is a major funding currency. Risk appetite among investors is improving which reduces demand for the Dollar. The USD is considered a safe-haven currency, a key to the currency's strength during the financial crisis.
The recent influx of positive economic news from the U.S, Europe and China reduced the desire for the safety of the greenback and pushed traders towards riskier, higher yielding currencies. The Dollar fell against the EUR., but rose against the Pound and JPY. The GBP/USD rate finished lower by nearly 140 pips at 1.6128.Against the EUR, the USD lost 30 pips to close at 1.4198.
Overall there was little volatility in the market yesterday, ahead of the much anticipated May Non-Farm Employment Change and Unemployment Rate reports to be released today at 12:30 GMT. Positive news may help reverse some of the Dollar's
EUR - EUR recovers on Trichet's speech
The EUR recovered from a one-week low against the USD Thursday. However, trading remained inside a narrow range, staying roughly within the $1.40-$1.43 range. The EUR/USD rate closed at $1.4198 from $1.4168 on Thursday. Additionally, the EUR/JPY finished trading at 137.39 Yen from 136.22 Yen. These results show the EUR recovered after a climb in U.S stocks and a relatively optimistic speech by the European Central Bank's (ECB) President Jean-Claude Trichet. He stated that he believes the region's economic performance will improve later this year.
The European Central Bank decided Thursday against cutting its main Interest Rate, maintaining it at 1.0%. Although low, this rate is still higher than the Federal Reserve's key rate, which is in a range between 0% and 0.25%. This means that yields on the EUR based assets remain more attractive than those denominated in the USD. The ECB's reluctance to ease monetary policy further gives way to further strengthening of the EUR.
Traders should pay close attention to the U.S Non-Farm Employment Change and U.S Unemployment Rate reports to be released today at 12:30 GMT, as well as the GBP PPI Input to be released at 8:30 GMT.
JPY - JPY Plummets as Safe-Haven Status Comes Under Threat
Japan's currency declined Thursday versus 15 of the 16 most traded currencies. The USD/JPY rate closed at 96.74 Yen per USD from 96.15 Yen yesterday, and at 137.29 Yen per EUR from 136.22 Yen on Thursday. The fundamentals in Japan are quite poor. Furthermore, the yields are extremely low and many Japanese investors are opting to buy higher yielding assets oversees while selling the Yen, therefore devaluing the Japanese currency further.
The release of the U.S Non-Farm Employment Change report today may put further downward pressure on the Yen, and it is likely to continue its losses against the USD and EUR. This is increasingly likely, as the expectation is that employers in the U.S. cut fewer jobs last month as the deterioration of the labor market slowed.
Crude Oil - Oil Rallies Towards the $70 Price Level
Crude Oil rose dramatically on Thursday, rising to a seven-month high. Crude Oil prices rose to $69.22 yesterday, an increase of more than $3 a barrel. Crude prices quickly recovered from Wednesday's steep losses and resumed the march toward $70 a barrel. The rally followed a forecast made by a Goldman Sachs analyst stating that “As the financial crisis eases, an energy shortage lies ahead”. The bank set a 12-month price target of $90 a barrel, up from $70.
Expectations of a quick economic recovery dominate long-term prospects for Oil trading. Oil prices recovered very quickly from a Department of Energy report showing a surprise increase in U.S. Crude Oil inventories on Wednesday. The release of the Unemployment Rate data today may put some strain on Oil prices as the rate is expected to rise. However, as optimism seems to be the leading force in the markets, rising equities and a weakening Dollar may prove to have a greater affect on Oil prices than the unemployment results.
The pair has been range trading between the $1.4100-1.4350 level in the past few days. The daily chart's Slow Stochastic and RSI signal that the pair is set to go on a downward trend today. Going short with tight stops may turn out to be a decent strategy today.
The 4-hour and 1-day chart's Bollinger Bands show that the pair is gradually losing steam. This is also supported by the daily chart's RSI and Slow Stochastic. Going short with tight stops seems to be the preferable strategy.
The daily chart and the 4-hour MACD Oscillator points to a continuation of the bullish trend that there pair has experienced in the past 2 days. If this trend does indeed continue, then we may see the USD/JPY rate reach 97.50 by the end of the week. Entering the popular trend now may turn out to be a wise choice.
Today's charts seem to be showing mixed signals. The daily chart's MACD signals that there is still some bearishness left in the pair, before bullishness takes hold. However, the hourly chart's MACD and daily chart's Slow Stochastic indicates that there is likely to be much bullish momentum in the pair today. Entering the pair when the signals are clearer may be a preferable strategy.
The Wild Card
The pair rose significantly in the past several days, and has peaked at 0.8836. However, the hourly chart's MACD seems to be floating in an overbought territory. This suggests that the recent upward trend is losing steam, and a bearish correction is pending. This may be a good opportunity for forex traders to enter the trend at a very early stage.
|01:30||AUD||AIG Construction Index||47.1||-||-|
|03:30||AUD||ANZ Job Advertisements||m/m||-0.4%||-||-|
|08:00||EUR||German Industrial Production||m/m||-1.4%||-||-|
|09:00||CHF||Foreign Currency Reserves||532B||-||-|
|10:30||EUR||Sentix Investor Confidence||18.4||-||-|