Month: June 2009

By Fast Brokers – We got nice movement to the upside from the USD/JPY on Friday after the currency pair got above our 2nd tier downtrend line.  However, the bull-run has hit a wall at our 3rd tier downtrend line as investors hesitate below May highs.  We’re finally seeing some volatility from the USD/JPY after a dry spell with the currency pair participating in the broad appreciation of the Dollar.  The USD/JPY finds itself in an advantageous position in the process.  Our 4th and 5th tier downtrend lines are drawing in closer by the day with yearly highs just out of reach.  If the USD/JPY can fight through our 4th and 5th tier downtrend lines along with 2009 highs and the critical 100 level, we may witness a near-term explosion to the upside.  However, these barriers are certainly worthy foes, and breaking out to the upside will take convincing volume.

Meanwhile, investors should keep an eye on the EUR/USD and GBP/USD since the USD/JPY should continue to exhibit a negative correlation with these currencies for the time being.  Currency movements are honed in on the fate of the Dollar, and the appreciation of the greenback over the past few sessions is a result of the realization that the Fed may need to raise rates by year end to defend the currency.  While the uptrend is gaining a little momentum, there are some strong medium-term downtrend forces at work.

Fundamentally, we find resistances of 98.66, 99.49, 100.06, 100.74, and 101.55.  To the downside, we see supports of 97.98, 97.45, 96.90, 96.33, and 95.82.  The 100 level serves as a key psychological barrier with 95 acting as a psychological cushion.  The USD/JPY is currently exchanging at 98.63.

Market Commentary provided by Fast Brokers.

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GBP/JPY survived Friday’s NFP number with a spike higher on the data release, and then a slow fade lower. Not a very large movement for a pair that is traditionally quite volatile. Similar to the US Equities markets, the traders of GBP/JPY took the NFP number with mixed emotions. But a look at the longer-term technicals points towards the pair rolling over for a steep drop.

When we laid a set of Bollinger Bands (“BB”) over a chart of GBP/JPY with 2 hour candles, we noted that the pair has not held any breaks of the upper BB in the last week. Yet it keeps testing the lower boundry. We also noted the formation of a clear channel with lower highs and lower lows all through last week. (We added some channel lines to the chart below)

So even though the equity markets did not fall hard on Friday, and seem to be keeping their positive tone, it looks to us that GBP/JPY is rolling over and heading lower.

While we do not have a specific trade recommendation at this point in time, we have changed our bais on GBP/JPY towards a move lower. We will keep this view in mind as we look for short-term opportunities in the next few days.

Stay Nimble!

Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com

Thanks to FX Sol and Accucharts for the below image.

Source: ForexYard

The currency market is focusing on U.S. short-term Interest Rates as talk of a rate increase by the Federal Reserve has emerged. Dealers said that market participants will focus on a slew of Treasuries auctions this week. If longer-term Treasury yields rise on supply worries, this could weigh on the U.S dollar. and that might be difficult for the USD to climb further only on U.S. positive jobs data.

Economic News

USD – USD Reversal in the Works – Will it Hold?

Last Friday’s surprising Non-Farm Employment Change report helped to generate a fantastic reversal for USD pairs and crosses. Regaining much of what it had lost in the previous 2 weeks, the greenback rallied Friday and breached a number of significant support and resistance levels. The EUR/USD traded over 1.4200 by mid-day Friday, yet currently trades under 1.4000. The GBP/USD temporarily spiked above 1.6200 only to fall back towards 1.5950 by today’s early trading session. These currency pairs only demonstrate a small sampling of the movement which the Dollar witnessed in late-afternoon trading on Friday.

Perusing through today’s market movements it seems as though last Friday’s employment reports will continue to drive market optimism in the US economy. Therefore, traders can expect USD pairs and crosses to continue their reversal, or level-off at the very least. So far, in today’s early trading hours, the greenback has appeared to stabilize and float in neutral territory against most of its currency counterparts. With hardly any news coming from the United States, this isn’t likely to change today.

Looking ahead this week, there isn’t much economic news expected which will impact the Dollar like last week’s data releases. Traders will likely see a continuation of recent trends primarily due to the lack of economically impacting data from world markets. Significant to bear in mind, however, is the upcoming G8 summit this coming weekend. While it is not an official regulating body, it is an official meeting between finance chiefs and central bankers at the highest levels who will meet to discuss recent issues facing the global economic community. As a result, it may carry an impact on the future movement of the major world currencies; like the USD.

EUR – EUR Strength a Myth?

After climbing to its highest level in 2009 against the USD, the EUR now appears to be losing steam. Last week’s jobs data from the US has put a damper on EUR gains. Climbing as high as 1.4330 against the Dollar, and 0.8867 against the GBP last week, the EUR is now trading at 1.3985 and 0.8773, respectively, marking a considerable loss in value in just a short time period.

As many analysts are anticipating traders to jump on the band-wagon of USD-buying this week, the EUR will likely continue to see bearish results against many of its rivals. Once it had reached the key resistance level of 1.4300 against the Dollar, economists began to state that the EUR will now face a sell-off period from the failure increased risk appetite to generate the demand for the EUR needed to sustain its recent bullish movement. They now claim that the EUR is going to witness a bearish run against most currency counterparts before continuing its climb.

Looking at today we can clearly see that the EUR has very little economic news which will impact the market. Generally speaking, this means that the EUR’s downtrends will likely continue throughout the day. This is also true of the remainder of the week as well. With few pieces of meaningful economic data expected to be released, the EUR will not likely regain the strength seen last week for some time.

JPY – Yen a Primary Currency to Watch this Week

Last week’s jobs data from the United States has helped generate a confident push in the value of the USD and the JPY felt the sting of this rush just as every other currency. Trading as high as 96.50 against the greenback during early trading sessions last Friday, the USD/JPY currently stands near 98.50 in today’s early morning hours. The strength in the US market has helped rally the appeal of the American safe-haven and taken more funds away from the carry-trade safe haven of the Japanese Yen.

With an inordinate amount of economic news expected from Japan this week, we could see a sharp increase in trading volatility for this specific currency. As figures such as the M2 money supply, Japanese Final GDP, and core machinery orders are published this week, traders will get a healthy look at the state of the island economy. No doubt the Japanese Yen will be one of the currencies to watch this week!

Crude Oil – Crude Oil Prices Falling back towards $65 a Barrel

Last week’s spike towards $70 a barrel for the price of Crude Oil may have indeed been a fluke. As the USD strengthens on positive economic data, the value of Crude Oil has begun to decline as a result. A number of analysts have cautioned that this recent spike in price may be similar to the spike in mid-2008 which played a role in the economic crash which ensued. If oil prices are not brought under control, the impact on the global energy market could severely impede the progress of economic recovery.

Driving the price of Crude Oil this week is the value of the US Dollar. Most signals indicate that the greenback is forecast to continue its bullish trends this week which indicates that Crude Oil will likely continue its decline in the days ahead. Short of any significant breaking news which revalues the USD, it is safe to say that these trends are relatively more predictable and stable this week as compared to other weeks. We may have a healthy price target of $65 a barrel in the short-term.

Technical News

EUR/USD

The bearish trend continues with plenty of steam. On the daily chart the bearish momentum is still intact as the pair now floats in the middle of it. The hourly chart also support that notion; however the RSI implies that in the near future the ongoing bearish correction might run out of steam. Traders are advised to take advantage of the pair’s bears.

GBP/USD

The pair is in the midst of a very strong bearish move, as it dropped almost 200 pips for the past couple of days. As of now, the Bollinger Bands on the 1 hour chart are tightening, indicating that a violent move is quite impending, and a bearish cross on the 4-hour chart’s Slow Stochastic is taking place, suggesting that bearish move might extend further.

USD/JPY

The pair is still range-trading without making a significant breach, and was last traded around the 98.30 level. However, a bearish cross on the 4 hour chart’s Slow Stochastic suggests that a bearish momentum is building up. Going short with tight stops seems to be the right strategy today.

USD/CHF

This pair is in the midst of a downtrend; however, it appears that it is slowly leveling out. The hourlies are showing mixed signals. The 4-hour chart’s RSI is showing that bullish correction is imminent. Traders are advised to wait for a clearer signal on the hourlies before entering the market.

The Wild Card – Oil

Crude Oil prices rose significantly in the last week and peaked at $69.19 a barrel. However, 4 hour chart’s RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

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USD
The U.S dollar rose sharply against its major rivals Friday, as economic data showed evidence the U.S. recession is easing, boosting demand for the nation’s assets. The EUR/USD climbed 1.3% to $1.3968 as a government data that showed the U.S. economy lost far fewer jobs in May than had been feared, buoying hopes that the worst of the recession has now past.

Analysts said that the Dollar’s strong move is likely to gain further support because as bad as the U.S. looks, it looks better than other countries. Earlier this week, the USD rallied on a report that major Asian central banks vowed to support the U.S. currency and Treasuries. The greenback also had its best week since February versus the Yen, adding 3.5% to reach 98.64 yen. The Yen has been most sensitive to rising risk appetite because the more investors seek risk, the less they need to hold the low-yielding currency.

It appears that the markets are moving to a situation where stronger economic numbers are actually good for the U.S dollar, which might be an indication that the pessimism on the Dollar has been overdone. Analysts expect the U.S. currency to rebound after its previous losses, as investors start to focus on improving U.S. economic fundamentals. In case the Dollar breaks its resistance level of $1.4090 it may appreciate as high as $1.3870 vs. EUR this week

CAD
On Friday, the Canadian dollar fell to its lowest level in a week against the U.S. currency after Canadian jobs figures showed that Canada lost more jobs than expected in May, and the unemployment rate surged to an 11-year high of 8.4%. The USD/CAD slipped 2.5% to C$1.1190 versus the greenback, sharply down from Thursday’s close at C$1.0968 to the U.S. dollar. For the week, the Canadian currency fell 1.9%.

Canada’s dollar rallied 9% this year against the currency of the U.S., the nation’s biggest trade partner, as prices of commodities including crude oil rose. The Bank of Canada sounded a cautious note on June 4 when it reiterated a pledge to keep its benchmark Interest Rate at a record-low 0.25% for the next year. The Bank of Canada sounded the alarm about the currency’s rise on Thursday by stating that a sustained rally in the currency could undermine recent significant improvements in economic conditions.

Analysts said that the recent appreciation of the Canada dollar has been overdone, as traders are beginning for the first time in months to price in chances that the U.S economy is emerging from recession. The Canadian currency tumbled from near an 8 month high as traders speculated the U.S. Federal Reserve may raise Interest Rates. The CAD bearish trend line is likely to continue as the trading week begins, if the currency drops below1.107 level vs. the USD, next price targets are 1.1245 and 1.13.

By GCI Fx Research

€

The euro moved sharply lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3990 level and was capped around the US$ 1.4265 level.  The common currency moved lower after the release of better-than-expected U.S. May non-farm payrolls data that saw payrolls growth of -345,000, considerably better than the -600,000+ number that economists were expecting.  In contrast, however, the unemployment rate jumped to 9.4% from 8.9% in April, its highest level since August 2003.  Additionally, there was a cumulative +83,000 upward jobs revision to March’s and April’s tally, suggesting the labour market was not as weak at the beginning of the second quarter as originally expected.  Still, most economists believe the ongoing U.S. economic recovery will largely be a jobless recovery as most companies are slow to rehire new workers and major U.S. industries like the automotive sector lay-off massive amounts of people.  U.S. Treasury yields continue to sell-off and the 10-year Note is now yielding 3.81%, its highest level since early November.  This curve steepening either reflects more optimism about the U.S. economy, increased pessimism over the U.S.’s fiscal state, or both.  In eurozone news, European Commission member Alumnia said “the next quarters should show positive developments and growth should turn positive in the first part of 2010.” European Central Bank member Weber cautiously reported “We are currently witnessing the fact that these extensive interventions are having some stabilizing effects on financial markets and have, judging by the initial signs, probably led to a slowdown in the rapid pace of the downswing in the real economy.  Nevertheless, the future outlook remains uncertain.”  Speaking on interest rate policy, ECB’s Hurley noted “We haven’t taken any decision that this is necessarily the lowest rate. We never pre-commit. We have to assess the data that emerges and make our decision on the basis of that data, so there’s no commitment but we are closely monitoring the situation going forward.” Euro bids are cited around the US$ 1.3435 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥98.20 level and was supported around the ¥96.50 level.  The yen was offered across the board as traders moved into higher-yielding assets following better-than-expected U.S. May non-farm payrolls data.  Dealers continue to cite outgoing yen investment that is being directed to foreign corporate bond purchases and this continues to have a negative impact on the yen.  Most Bank of Japan-watchers expect the central bank will keep monetary policy unchanged for the foreseeable future.  The Nikkei 225 stock index climbed 1.02% to close at ¥9,768.01.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥139.20 level and was supported around the ¥136.85 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥158.50 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥91.40 level. In Chinese news, the U.S. dollar strengthened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8315 in the over-the-counter market, up from CNY 6.8298.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5955 level and was capped around the $1.6240 level.  Sterling continues to sell-off on escalating political uncertainty.  A few of Prime Minister Brown’s Cabinet members have resigned this week and there have been growing calls for Prime Minister Brown to step down as well.  It appears Chancellor of the Exchequer Darling – himself ensnarled in the expenses scandal – will retain his portfolio.  Brown has reshuffled his Cabinet and sterling is weaker on the premise that Brown will be forced out of office and the Tories will win the next election.  Bank of England reported it has purchased ₤79.9 billion of securities through its asset purchase facility so far.  Data released in the U.K. today saw May factory gate prices decline 0.3% y/y, the first yearly decline since 2002, while input prices were off at the fastest rate since 2001 at -42.2% y/y.  Cable bids are cited around the US$ 1.5790 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8730 level and was capped around the ₤0.8865 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0860 level and was supported around the CHF 1.0660 level.  Data released in Switzerland today saw May consumer price inflation rise 0.2% m/m and decline 1.0% y/y.  U.S. dollar offers are cited around the CHF 1.1165 level.  The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5235 and CHF 1.7400 levels, respectively.

Daily Market Commentary provided by GCI Financial Ltd.

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By CountingPips.com

U.S. Nonfarm Payrolls employment data released today showed that jobs declined much less than market forecasts were expecting in May signaling that the deep decline in employment is slowing. The Department of Labor nonfarm payrolls report showed that U.S. payrolls shed 345,000 jobs in May following a revised decrease of 504,000 jobs in April.

May marked the seventeenth straight month that companies have shed workers but the first month since October 2008 with under 400,000 job losses. The  unemployment rate continued to increase as the rate went from 8.9 percent in April to 9.4 percent in May and brought the rate to its highest standing in 26 years.

The May job report was much better than the market forecasts that were expecting a loss of approximately 520,000 jobs but the unemployment rate figure was worse than forecasts expecting the unemployment rate to reach 9.2 percent.

April’s job decline was revised lower to show a loss of 504,000 jobs after originally registering a loss of 539,000. The amount of jobs lost since December 2007 has now totaled 7.0 million and the unemployment rate has increased by 4.5 percent according to the Labor Department.

The decline in jobs was spread throughout most economic sectors with the goods producing sector losing a total of 225,000 jobs.  Within this sector, construction job losses slowed to a decline of 59,000 while manufacturing employment saw a decrease of 156,000. The service-providing sector lost 120,000 total jobs in May with professional & business services shedding 51,000 workers and retail trade cutting 18,000 workers. On the positive side, the education & health services sector saw 44,000 jobs created while the leisure & hospitality sector gained 3,000 jobs for the month.

U.S. Dollar gaining today in Forex Trading.

The U.S. dollar has been stronger in forex trading against the major currencies after today’s employment report. The dollar has gained against the euro, Australian dollar, Swiss franc, New Zealand dollar, British pound and Japanese yen.

The euro has fallen in trading versus the dollar from today’s 1.4200 opening at 00:00 GMT to trading at approximately 1.3984 in the US trading session at 11:44pm EST according to currency data by Oanda.

The British pound has declined versus the dollar as the GBP/USD has gone from its 1.6129 opening rate to trading at 1.6007 in the U.S. session.

The dollar has advanced against the Japanese yen as the USD/JPY has risen from its 96.73 opening to trading at 98.16 today.

The Australian dollar has declined versus the USD with the AUD/USD trading at 0.8009 after opening today at 0.8037. The New Zealand dollar has also lost ground versus the US dollar as the NZD/USD trades at 0.6316 after opening the day at the 0.6355 exchange rate.

Against the Swiss franc, the USD has been gained almost 200 pips today as the USD/CHF has jumped from its 1.0677 opening to trading at 1.0854. The dollar has increased against the Canadian dollar after the USD/CAD opened at 1.0982 earlier today to trading at 1.1141.

EUR/USD Chart – The Euro declining against the US Dollar in Forex Trading today and falling below the bullish trendline on the 4-hour chart.

By Robert Prechter, CMT

The following article is adapted from a brand-new eBook on gold and silver published by Robert Prechter, founder and CEO of the technical analysis and research firm Elliott Wave International. For the rest of this revealing 40-page eBook, download it for free here.

I have often read, “Gold always goes up in recessions and depressions.” Is it true? Should you own gold because you think the economy is tanking? Whenever we hear some claim like this, we always do the same thing: We look at the data.

The first thing to point out is that gold did not make a nickel of U.S. money for anyone in any of the recessions and depressions from 1792, when the gold-based dollar was adopted, through 1969, a period of 177 years. Well, to be precise, there was a change in the valuation in 1900, when Congress changed the dollar’s value from 24.75 grains of gold, the amount established in 1792, to 23.22 grains, a devaluation of just six percent total over 108 years. The government did raise the fixed price from $20.67/oz. to $35/oz. in 1934, but that action occurred during an economic expansion, not during the Depression. In 1968, gold finally began trading away from the government’s fixed price. Even then, it slipped to a lower price of $34.95 on January 16 and 19, 1970. So the idea that gold always goes up in recessions and depressions is already shown to be wrong. It did not go up in terms of dollars in any of the (estimated) 35 recessions or three depressions during that period.

What almost always does happen during economic contractions is that the value of whatever people use as money goes up as prices for goods and services fall. When gold is used as money, its value in terms of goods and services goes up. But gold can’t go up in dollar terms when gold and dollars are equated. So no one “makes money” holding gold under these conditions. It is a fine point: What tends to go up relative to goods and services during economic contractions is money, and when gold is officially money, that’s how it behaves. What we want to know is how gold behaves in recessions and depressions when it is not officially accepted as money.

Many gold bugs say that because gold was a good investment during the Great Depression, it is a “deflation hedge.” We addressed this topic in At the Crest of a Tidal Wave (1995, p.357) and Conquer the Crash (2002, pp. 208-209). At the time, government fixed gold’s price, so it didn’t go up or down relative to dollars. Gold was a haven during that time, the same as the dollar was, since they were equated by law. But gold served as a haven because its price was fixed while everything else was crashing in price during the period of deflation. Gold bugs like to claim that gold would have gone up during that period had it not been fixed, but the crashing dollar prices for all other things suggest that in a free market gold, too, would have fallen. It would have fallen, however, from a higher level given the inflation of 1914-1929 following the creation of the Fed. So gold became worth more in dollar terms than it was in 1913, which is why it began flowing out of the country. In 1934, the government finally recognized the new reality by raising gold’s fixed price. Since 1970, markets have been in a large version of 1914-1930, except that gold has been allowed to float, so we can clearly see its inflation-related, pre-depression gains.

Observe that gold’s price remained the same for a Fibonacci 21 years after the Fed was created in 1913; it was revalued in 1934. [Ed. Note: For a full chapter on Fibonacci time considerations for gold, download the 40-page Gold and Silver eBook.] Then it held that value for 35 (a Fibonacci 34 + 1) years, through 1969. So aside from the revaluation of 1934, the inability to make money holding gold during recessions, depressions, or any time at all save for the day of the revaluation in 1934 held fast for 56 (a Fibonacci 55 + 1) years following the creation of the Fed. So even after Congress created the central bank, no one made money holding gold in a recession or depression for two generations.

In 1970, things changed dramatically. Investors lost interest in stocks and preferred owning gold instead, for a period of ten years. The same change occurred again in 2001, and so far it has lasted seven years. But, as we will see, recession had nothing to do with either of these periods of explosive price gain in the precious metals.

The period of time one chooses to collect data can make a huge difference to the outcome of a statistical study. If we were to show the entire track record from 1792, gold would show almost no movement on average during economic contractions. If we were to take only 1969 to the present, it would show much more fluctuation. To give a fairly balanced picture, combining some history with the entire modern, wild-gold era, I asked my colleague Dave Allman to compile statistics beginning at the end of World War II. This is what most economists do, because they believe “modern finance” began at that time and that things have been “normal” since then. It’s also when many data series begin. So our study fits the norm that most economists use. It also provides results entirely from the Fed era, making it relevant to current structural conditions.

[Ed. note: To study the six tables revealing gold’s performance record vs. stocks and T-notes since WWII, download the 40-page Gold and Silver eBook.]

Table 1 shows the performance of gold during the 11 officially recognized recessions beginning in 1945. Although one could make a case for different start times, we took the 15th of the starting month and the 15th of the ending month as times to record the price of gold. The results speak for themselves. Even though it is accepted throughout most of the gold-bug community that gold rises in bad economic times, Table 1 shows that such is not the case.

The only reason that the average gain for gold shows a positive number at all is that gold rose significantly during one of these recessions, that of 11/73-3/75. The average gain for all ten of the other recessions is 0.16 percent, almost exactly zero. The median for all 11 recessions is also zero. If we omit the five recessions during which the price of gold was fixed, the median gain is 3.09 percent.

For long-term forecasts and more in-depth, historical analysis for precious metals, including the six revealing tables mentioned in this article, download Prechter’s FREE 40-page eBook on Gold and Silver.

Robert Prechter, Chartered Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Going into tomorrow’s US NFP data there are two themes driving my thinking. The first is that NFP Data is not nearly as significant a factor to the markets as it was two years ago when it was singularly the most important piece of data each month. The jobs report will show a huge loss of jobs. Maybe the actual will beat the estimates; maybe not. Either way, the US (and global) economy is still in trouble and not recovering in a “V” shape. So the relevance of this data release is not as strong as it used to be.

Second, the risk/reward scenario seems to be lined up towards being long USD. The trend of the last few weeks has been to be short USD as global market participants have become complacent and put on riskier positions. Global equities are up, the carry trade is up, junk bonds are up, volatility is down. And selling USD while going long higher-yielding currencies is back in vogue.

But markets (especially highly leveraged markets such as futures, options and spot FX) tend to inflict pain on those who are complacent. The move lower in USD and higher in the USD-based pairs has gained strength in the last two weeks. We believe that too much complacent money has flowed into the short USD positions. The dealers on the money-center dealing desks (Deutsche, Citi, HSBC…) know that their client base is short USD. And reversal of the trend of the last two weeks will start to shake out those positions and create transactions as latecomers to the short USD positions have to stop themselves out. If enough people in short USD positions start to cover their positions, we will see a squeeze in USD and a sharp move higher. So the dealers on the big desks are biased towards a strong USD moves sometime soon. Will tomorrow’s data be the opportunity to start the USD moving higher to see what shakes out? Possibly.

Our bias going into tomorrow’s NFP is to look for a chance to buy USD, especially against GBP and AUD, the two currencies that have gained more than others in the last two weeks.

Stay Nimble!

Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com

Source: ForexYard

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.

Economic News

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
recent losses.

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.

Technical News

EUR/USD

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.

GBP/USD

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.

USD/JPY

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.

USD/CHF

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 – EUR/GBP

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.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Today is the most important economic news event of the month, the U.S. Non-Farm Employment Change figures. Traders should take note that the results of this indicator usually creates great volatility in the forex market

 8:30 GMT- GBP PPI Input

• This indicator reflects the change in the price of raw materials purchased by manufacturers.
• This data release is forecasted to improve from the previous month’s result.
• The results typically create volatile market conditions.
• Higher than forecasted results could send the GBP/USD pair above the 1.6150 mark.

 12:30 GMT- U.S Non-Farm Employment Change

• This indicator reflects the change in the number of employed people during the previous month, excluding the US farming industry.
• The indicator typically creates a volatile trading environment, affecting not only the USD crosses but also the value of Crude Oil and Gold.
• Disappointing results could send the EUR/USD pair above the 1.4400 resistance level.
• Traders may find good opportunities to enter the market following this vital and probably the most important announcement of the month.

 Tips on Crude Oil

• Crude Oil rose significantly yesterday as the price is currently trading around the $69 level.
• The release of the U.S. Unemployment Rate data on Friday 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 market, rising equities and a weakening Dollar may prove to have a greater affect on Oil prices than the results of the unemployment indicator.