Source: ForexYard
Strong private payroll numbers boosted equities today as well as higher yielding assets such as the Aussie dollar and crude oil. The dollar and the yen sold off sharply while the euro rose versus the greenback for the first time in seven days.
Economic News
USD – Dollar Rally Stalls
The US dollar fell versus the euro for the first day in more than a week as risk appetite increased significantly. Today’s trading was influenced heavily by the release of better than expected ADP Non-Farm Unemployment report. The private payrolls data came in at 93k with market expectations of 70k.
Traders also received some reassurance as rumors spread of an increased contribution by the US to the IMF stability fund. This provided much needed support for the euro and other riskier currencies versus the dollar such as the British pound and Aussie dollar. However, this rumor was later denied by US officials and most currencies came off of their daily highs following the denial.
The EUR/USD traded higher today at 1.3130, up from an opening day price of 1.3009. The GBP/USD was up at 1.5615, after opening the day at 1.5580. The AUD/USD was up sharply at 0.9670 following an opening day price of 0.9569. Equities were significantly stronger with the Dow Jones Industrials Average rising 2.3%.
Weekly unemployment claims highlight the US data releases set for tomorrow. Expectations are for an increase of 425k new jobless claims. Last week saw 407k new claims filed. Also due to be released are monthly pending home sales. Economists predict a decrease of 0.7% with last month’s numbers falling 1.8%.
Yesterday’s bounce in the EUR/USD may have been a temporary correction in the downtrend, or could it be something larger that correlates with the rise in oil prices and equities? Support and resistance for the EUR/USD come in at 1.2960 and 1.3310.
EUR – Euro Receives Relief from Slide
The euro experienced a temporary respite from its sharp slide over the last week and a half as negative risk sentiment waned and traders brought higher yielding assets.
Despite the uptick for the euro more negative news was released from Europe compounding Europe’s financial difficulties. Portugal’s sovereign debt was put on a negative warning by rating agency Standard & Poor’s.
Europe has once again been engulfed in a financial crisis and contagion fears have compelled traders to sell the euro for the last two weeks. However, today the 16-nation currency received a bounce. The rally in the EUR/USD may not be an isolated event as the rise in the currency pair also coincides with the sharp appreciation in equities, crude oil, and other higher yielding assets.
Today traders will be following the release of the Minimum Bid Rate from the European Central Bank (ECB) along with a speech to follow by ECB President Jean-Claude Trichet. Any comments by Trichet that signal further assistance may be on the way for Ireland or other European nations in financial troubles may help to push the euro rally further. Speculations are for an announcement of an ECB bond buying program. Should this occur it should be a positive for both the euro and equities.
JPY – Yen Falls and Aussie Dollar Rise as Market Fears Ease
The yen continues to weaken in the face of the European debt crisis. Yesterday the Japanese currency was down sharply as traders looked to riskier, higher yielding assets.
The USD/JPY rose to its highest level in 3-months to a price of 84.38. The pair ended the day up at 84.15 from an opening day price of 83.52. The EUR/JPY was up sharply at 110.43 after opening at 108.67.
With risk trading on, the Aussie dollar was also a strong performer yesterday. The AUD/USD rose to a high close to 0.9700. However, the pair shed much of its gains and fell to 0.9640 following the release of less than expected retail sales. The monthly data shed 1.1% on expectations of a 0.4% increase.
Both the yen and the Aussie dollar will be affected by the US data releases later today. Events in Europe will also influence the movements of the Asian currencies. As such, traders should be following the US weekly unemployment data and comments from ECB President Jean-Claude Trichet. USD/JPY support and resistance are 83.35 and 84.40.
The daily chart shows the AUD/USD tested but failed to breach the bullish trend that begins in early June. This may be a good spot for traders to go long with a protective stop underneath the trend line.
Crude Oil – Spot Crude Oil Jumps 2.5%
The price of spot crude oil skyrocketed by 2.5% in trading yesterday as traders put the European fiscal crisis behind them at least in the short term and focused on an improving US economy as well as a rumor of the US supporting the IMF in any European financial solution.
A high of $86.94 was reached yesterday; the highest price spot crude oil has traded in two weeks. Spot crude oil finished the day at $86.37, up sharply from its opening day price of $84.40.
US economic data was a heavy influencer on traders as US private payrolls reported better than expected numbers as well as an increase in US productivity. Also helping to drive the price of crude oil higher was a weaker dollar. The combination of positive economic data and a falling dollar pushed traders into the high yielding commodity.
Surprisingly, weekly crude oil inventories disappointed traders with inventories rising by 1.1m barrels on expectations of a decrease of 0.8m barrels. The negative reading however failed to halt the rally in spot crude oil prices.
In order for spot crude oil prices to continue the rally the price will need to breach the $87.10 resistance level on its way to test the yearly high of $88.34.
Technical News
EUR/USD
Yesterday the pair broke a 7-day streak of declines. The jump in the rate should be short lived with more euro selling on the way. Traders may want to target the lower channel line of the lows of mid-November as a support which comes in at 1.2890. A further target should be the 61.8% retracement level from the June to November move.
GBP/USD
The pair’s downtrend appears to have stalled at 1.5500, the 38.2% retracement level from the May to November move. Short term resistance is found at the October low and yesterday’s high of 1.5650. Should the pair close above this resistance level further bullishness may be seen with a target the mid-November low of 1.5840.
USD/JPY
The pair failed for the second time to breach the resistance level at 84.40. Should a solid close be put in above this line, a lack of a significant resistance level on the charts could propel the pair to the post intervention high of 85.90.
USD/CHF
Bears appear to have drawn a line in the sand at 1.0040, the 50% retracement level from the August to October move as the pair has tested and failed to break the resistance line 4 times. A close above this level may take the pair to the next resistance at 1.0180, the 61% retracement level for the same time period.
The Wild Card
Gold
Tuesday’s trading ended with a shaved head candlestick which signals potential bullishness in the commodity. This is in contrast to the head and shoulders pattern that appears on the daily chart. The chart pattern signals a potential reversal. Forex traders should remain long on gold until a close below the neckline signals confirmation of the head and shoulders pattern.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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