Article by AlgosysFx Forex Trading Solutions
Positive economic reports from the world’s largest economy are presumed to incite risk appetites today, weakening the demand for the safe haven US dollar. A sharp drop in Unemployment Claims last week and an expected positive reading on a consumer confidence report today are seen to provide optimism that the spending could provide a lift to the US economy in the coming months.
In an encouraging sign that the US jobs sector is on a steady mend, the Labor Department reported yesterday that the number of individuals filing for jobless benefits dropped to its lowest level in more than four years last week. Claims fell by 30,000 to a seasonally-adjusted 339,000 last week, the fewest since February 2008. The four-week moving average, a less volatile measure, dropped to a six-month low of 364,000. Although analysts say that the drop is largely due to an unexpected shift in seasonal reporting by one state, the decline still indicates better hiring ahead. Analysts estimate that when applications consistently fall below 375,000, it suggests that hiring is strong enough lower the Jobless Rate.
Such strides in the labor market are seen to be one primary reason for consumer confidence to have held up this month. The University of Michigan Prelim Consumer Sentiment report is foreseen to come in at 78.1 points in October, slightly lower but still near the four-month high of 78.3 points registered in the previous month. Aside from steadying labor prospects, improvements in housing and rising stock prices likely shored up sentiment among Americans. Consumer spending accounts for around 70 percent of US economic activity, and high confidence likely signifies that the US economy recovered in the second half of the year after expanding by a modest 1.3 percent in Q3.
Meanwhile, higher oil prices likely meant sustained inflationary pressures in September. The Labor Department is believed to report that the headline Producer Price Index rose by 0.8 percent after a considerable 1.7 percent gain in the previous month. The core reading, which strips out volatile items, is deemed to match the 0.2 percent increase in August. With price pressures still on the rise, prospects for a shorter than expected duration for the Federal Reserve’s QE3 is seen to rise. On increased risk appetites, a long position is advised for the AUD/USD today.
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