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Friday, 2 May 2008
Will The NFP Support The USD Bulls?
Yesterday the US dollar continued its week long success as it gained against a basket of major currencies, namely the Euro. The popular pair traded in the mid 1.54 level as it looks prime to post two straight weeks of gains for the first time in 2008. The bullish movement for the greenback kept strong despite concerns over today's non-farm payroll figures.
The overall impression by investors regarding the dollar is improving, as many believe the worst of the US economic problems are behind us. Following Wednesday's US Interest Rate cut by the Federal Reserve will likely curb any short-term involvement, unless a tragic change comes about within the US. After the EUR/USD hit all time highs just over 1.60 in late 3rd week of April, the dollar has responded by gaining nearly 3.5%. Though many key investors, most notably Warren Buffett are still convinced that the US is currently in recession it is hard to deny the substantial change in the dollar trends, as gains have been seen against the EUR, JPY and GBP.
Yesterday was an important news day on the US economic calendar. The release of some key economic indicators showed that some improvement or more importantly stability has returned to the US economy. Challenger Job Cuts, Core PCE Price Index and Personal Spending all came back with better than expected results. Though the figures don't contribute much to volatility in the market, the overall economic outlook in light of the positive results added to dollar bullishness. Still suffering losses were US employment figures as unemployment rose to 380K, a bit less than 20K more than forecasts. The unemployment figures will likely worsen before an improvement as seen, as the US job market will not see recovery as easily as its currency Personal income also suffered fairly insignificant losses, from last months figure. The important data for the day were ISM manufacturing figures. April's index was released on par with last month's figure of 48.6, 0.6 points higher than expected. Still though manufacturing still fell as a index of 50 and above denotes an expansion. It looks as if the overall dollar outlook was enough to push the currency up another day.
Today should provide some expected volatility in the market, ahead of a full day of US news events highlighted by Nonfarm Employment Changeand the Unemployment rate. Construction PMI Average Hourly Earnings and Factory Orders are expected to contribute little toward market movement as most of the investor attention will be geared toward highlighted events. NFP numbers are expected to stay on forecast with forecast of -80K (equal with last months) are on tap. Unemployment rates are expected to rise a small amount, however if the general consensus regarding the dollar is that of some positivity expect gains to last till the weekend.
The EUR has been forced to play second fiddle to the dollar lately as it has seen record highs against the Greenback slowly disappear. The reasoning behind such drops can be a cause of many different economic factors. As the EUR hit a one month low versus the dollar speculation over continued sell-offs have risen.
Absent from yesterdays' news calendar in observance of EU Labor Day, the 15 Nations currency could do little to recover against a basket of crosses and pairs. The new hawkish trend of the Federal Reserve in the US, coupled with many statistical and technical indicators the EUR could break the 1.54 level in a bearish trend.
Today we are expecting German Retail Sales and Manufacturing PMI from the Euro-Zone economies. PMI numbers are expected to see equal figures from last month's event and German Retails Sales is forecasted to show a rise in the value of sales at the retail level in Germany. A rising trend should have a positive effect on the Euro-Zone nations because Retail Sales makes up a large portion deal of Consumer Spending.. Still though expect the EUR to find little solace from investors as trends should likely continue into the closing of the market, as the momentum with the EUR hasn't improved.
Look for the EUR to respond to US data, most notably Non-farm payrolls. If US data comes back with negative results the EUR could recover a bit before market closing.
Yesterday, the JPY gained vs. the USD and traded at a high of 104.58 and a low of 103.55, before closing at 104.39 in New York trading session. Nevertheless, the Yen still remains weak against the greenback owing to rising U.S equity markets and more confidence in the Fed's rate stance prompting investors toward the higher yielding dollar.
With stocks heading north, a probability of a resurgence of the carry trade once again hit the market. A carry trade is when investors use a currency from a country with a low cost to borrow such as Japan and invest in higher yielding currencies from a country with a higher interest rate such as New Zealand or Australia.
In addition, yesterday's Labor Cash Earnings and Vehicle Sales were increased from the prior month. However it remains to be seen whether this strength can continue since inflation is expected to take a big toll on Japanese consumer demand.
Today Japanese markets are closed due to the national holiday. The JPY trade will probably remain light ahead of an extended holiday from the weekend, with markets closed also on Monday and Tuesday.
The key Fibonacci level of 1.5500 was breached and the bearish move is now validated with a full bar on the 4 hour chart. The momentum is very bearish and it appears that the next target price might be 1.5390. going short appears to be favorable today.
The daily chart is showing that the cable is still floating within the bearish channel with moderate bullish momentum. The 4 hour chart is showing that the bullish momentum is slowly diminishing, and a bearish signal was seen on the Slow Stochastic. Selling on highs appears to be a smart thing today.
The bullish channel on the daily chart still remains intact, as the pair now floats on the bottom barrier. The momentum is bullish and very strong. The hourlies support the bullish notion, and it appears that the pair still has much more room to run. Going long is a preferred strategy today.
After a relatively long dwell in neutral territory, the pair shows first signs of bullish momentum on the 4 hour chart. The daily chart is slowly joining the bullish sentiment, and it looks like the next target price might be 1.0530. Going long with tight stops could be a good move today.
The Wild Card
The momentum that was created by the bearish breach through the bottom of the channel in the daily chart is growing stronger. The 4 hour chart is supporting the very strong bearish notion, which creates a great opportunity for forex traders to join the trend created by that very strong signal.
|01:00||EUR||German Retail Sales||m/m||2.9%||-||-|
|01:05||GBP||GfK Consumer Confidence||1||1||-|
|02:00||AUD||HIA New Home Sales||m/m||1.8%||-||-|
|02:00||NZD||ANZ Business Confidence||34.4||-||-|
|02:30||AUD||Private Sector Credit||m/m||0.6%||0.5%||-|
|03:30||JPY||Average Cash Earnings||y/y||1.3%||0.7%||-|
|08:45||EUR||French Consumer Spending||m/m||0.6%||0.3%||-|
|09:55||EUR||German Unemployment Change||-20K||-10K||-|
|10:00||EUR||Italian Monthly Unemployment Rate||12.6%||12.5%||-|
|10:30||GBP||Index of Services 3m/3m||0.8%||0.7%||-|
|10:30||GBP||Revised Business Investment||q/q||-1.4%||-1.4%||-|
|11:00||EUR||CPI Flash Estimate||y/y||-0.3%||-0.3%||-|
|11:00||EUR||Italian Prelim CPI||m/m||0.3%||0.2%||-|
|14:00||USD||FOMC Member Lacker Speaks||-||-||-|