Month: May 2011

By CountingPips.com

U.S. jobless claims increased by much more than expected in the week that ended on April 30th and reached the highest level in eight months, according to a release by the U.S. Labor Department today. Weekly initial jobless claims rose by 43,000 workers to a total of 474,000 unemployed workers following the prior week’s 431,000 revised number of claims. The 474,000 jobless claims marked the highest level since August 2010.

The 4-week moving average of unemployed workers increased by 20,250 workers from the previous week to a total of 431,250.

Market forecasts were expecting jobless claims to decline to 440,000 workers.

Meanwhile, workers seeking continuing claims for unemployment benefits for the week ending April 23rd also increased for the week. Continuing claims decreased by 74,000 workers to a total of 3,733,000 unemployed workers.

The 4-week moving average of continuing claims fell by 1,250 workers to a total of 3,700,750.

Recently the financial stock market has been slow to react to anything. Events and data that would normally get a big reaction from the markets have had minimal effect. Even the killing of the most wanted man on Earth did little to influence U.S. stocks.

That calm trend may be about to change…

What News Matters for the Financial Stock Market?

All news, economic data and corporate announcements such as earnings reports have some influence on the financial stock market. A successful investor forms opinions about the economy and the companies he or she invests in based on all kinds of news. But an investor also needs to be aware of what news the financial stock market uses.

Think of the market as a telescope looking ahead about four to 12 months. Because of this “forward view,” we use the market as a leading indicator of strength of the economy.

Even though the stock market looks forward, there are checkpoints to make sure it is not getting ahead of itself or that it has gone far enough! The checkpoints are news reports and economic data. If these are not meeting expectations, the markets can correct.

Different news matters at different times. But one major checkpoint may need to really step up the pace, if the financial stock market is going to continue higher.

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Sara Nunnally simplify the stock market for you with our easy-to-understand investment articles.)

The Employment Situation

The unemployment rate, though important, is considered a lagging indicator of economic health. This means that the economy could be improving and the unemployment rate might be slow to respond.

Remember earlier I mentioned that the financial stock market is like a telescope? Well, you can also think of it as a rubber band. When the market moves higher and economic conditions improve, the tension on the band decreases. But when the market has been moving higher and the economy doesn’t improve fast enough, the tension increases. Too much tension and a snap-back will happen. That is not good for investors.

The jobs report, which contains the unemployment rate, is released on the first Friday of every month. It is closely watched…

The rate at which we add jobs in this country is being scrutinized more and more and is becoming a major source of tension in the markets. Traders are starting to be concerned.

The unemployment rate is at 8.8%, according to the Bureau of Labor Statistics.

Expectations are for the unemployment rate to stay at 8.8% for April, but analysts are also looking for 185,000 jobs to be added. (I know these unemployment numbers can be misleading and confusing. If you are wondering how jobs can be created and the unemployment rate can stay the same, read this Smart Investing Daily.)

The bottom line is, I don’t think the economy created 185,000 jobs last month. I think the number will be much lower, perhaps below 150,000. Here’s why:

1. Unemployment claims have been on the rise.

If you look at the chart below, you can see that new unemployment applications have actually been on the rise. The numbers have been coming in higher than expected and the revisions have been worse on average. This paints a grim picture for the jobs number Friday.

Unemployment claims since Feb. 10

View larger chart

2. ADP report was worse than expected.

ADP is the nation’s largest payroll company. It offers its employment data on the first Wednesday of every month to help investors get an idea of the market climate. Anyone who is familiar with the unemployment situation knows that the ADP report isn’t the best gauge of the actual jobs number; one could say that it tends to be more “optimistic” than the actual data from the BLS.

If that optimism were based on facts, we should have had a decent report last month. Unfortunately, the ADP jobs report came in far less than expected (see the second chart below). This is not what you should see if the economy is growing.

Monthly jobs added – BLS

View larger chart

Monthly jobs added – ADP

View larger chart

What Will Happen?

Well, expect a bad number. Based on the research I have done, the economy will add far fewer jobs than expected. The market will likely sell off on the news.

But you should then keep an eye on how the government reacts. With market movement, it is not just about this report. A jobs market that remains weak will provide an excuse for our friends at the Fed and in Washington to keep printing money. People without jobs can’t really spend extra money. So according to Bernanke, because people can’t buy things, consumer prices (inflation) won’t rise.

And since Bernanke still thinks inflation will be short-lived and doesn’t seem to care about the spending power of the average American, the weak dollar policy will continue. As illogical as it is, markets will continue to rally.

As much as jobs matter to most of us, the stock market likes some unemployment. The market will most likely get its wish tomorrow — a reason to climb.

Editor’s Note: Agricultural commodities are about to explode in price, sending food prices soaring. That’s bad for restaurants and consumers… but it’s great for farmers and commodity investors.

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ForexCT Afetrnoon Market Thoughts – 5th May, 2011

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By Russell Glaser

As expected both the Bank of England and the European Central Bank held their based lending rates steady as all eyes turn to today’s ECB press conference where a potential signal for next month’s ECB interest rate increase could come.

Commodities continue to trade lower, influencing equity markets with European bourses in the red. Silver prices dipped below the $38 level for the first time since early April. Speculations abound that the recent reversal in silver prices may be a signal for a market turn. The FTSE is down 0.7%, highlighting the risk-averse trading environment.

In volatile trading, the best FX performer has been the Japanese yen with the USD/JPY falling below the 80 yen level for the first time since the G7 intervention in March. The USD/JPY continues to move south of this key level, increasing the risk of future acts of intervention in the FX markets by the Japanese Ministry of Finance to weaken the yen.

The Canadian dollar is also reversing with the greenback strengthening. The USD/CAD reached as high as 0.9773, its highest level since mid-April.

Traders’ attention now turns to the ECB press conference where all eyes will be on ECB President Jean-Claude Trichet. The key words to follow during Trichet’s speech are “Strong vigilance”. This should be the signal both economists and traders are looking for. An increase to future ECB rates would be a catalyst for the euro while a pause in the ECB tightening cycle should trigger a sell-off in the euro.

The EUR/USD is currently trading at 1.4820 prior to the press conference. The first resistance is found at yesterday’s high of 1.4940 with a target at the 2009 high of 1.5140. Support comes in at the bottom of this week’s consolidation pattern at 1.4750, followed by 1.4630.

Forex Market Analysis provided by ForexYard.

© 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.

Source: ForexYard

Today’s data releases out of Europe and the United Kingdom regarding short-term interest rates will likely be predominant in today’s market valuations and traders would be wise to keep an eye on policy statements. The buck is still weakening from the rate differentials, but dovish statements from Europe today may close part of that gap.

Economic News

USD – US Dollar Declines to 3-yr Low as Data Disappoints

The US dollar experienced bearish results yesterday as traders began to shift away from the greenback following a string of negative data sets which underlined the weakness of the dollar versus its primary rivals. The USD initially moved lower against the safe haven Swiss franc and Japanese yen yesterday on global concerns, while stocks and commodities began to trade flatter in anticipation of a bounce.

The USD lost most of its recent gains against the EUR yesterday following the release of ADP non-farm employment data that revealed sluggish growth in the job sector of the US economy. With Friday’s NFP figure on the way, traders appear to have lost some optimism about the support of the greenback. The US economy also published a disappointing manufacturing report which showed further weakness growing in global industry.

The issue of American interest rates remains ever-present in economic analyses lately; leading many speculators to claim that this recent return to safety may leave the dollar exempt from the shift, as it usually is during times of uncertainty. Today’s data releases out of Europe and the United Kingdom regarding short-term interest rates will likely be predominant in today’s market valuations and traders would be wise to keep an eye on policy statements. The buck is still weakening from the rate differentials, but dovish statements today may close part of that gap.

EUR – Powerhouse EUR Fights Through Poor Data

The euro appears to have gained against its currency rivals yesterday regardless of the European Union and International Monetary Fund’s (IMF) announcement for a bailout of Portugal. The data releases published over the last several days have pushed many traders away from riskier assets, but the EUR has fought through the pain and appears poised to continue through today with interest rate decisions from the euro zone and Britain.

The bullishness may end up being short-lived, however, as investors returned temporarily to safe haven investments in expectation of an al Qaeda reprisal following bin Laden’s death this weekend. Portugal’s bailout was structured as expected and should not have a lasting impact on the region’s currency value. The bullishness on the EUR today was a continuation of a previous sentiment towards the EUR/USD, but dovish statements by the ECB today could undo much of these recent gains.

As for today, the euro looks like it may make further gains as trader sentiment shifts around the data releases out of the region. The major news today is the interest rate decision expected at 12:45 GMT, shortly after a similar announcement from the Bank of England (BOE) at 12:00 GMT. The rate statement by ECB President Jean-Claude Trichet is expected for 13:30 GMT. Rates are expected to be held steady by both, but any dovish statements like Trichet’s a few weeks back may hurt the value of the euro in the days ahead.

JPY – Yen Absent from Market, Gaining from Flight to Safety

The JPY has been trading with largely positive results since yesterday as investors turn their focus elsewhere amid global reactions to the death of Osama bin Laden. After reaching upwards of 82.75 on Monday, the USD/JPY quickly dropped to a daily low of 81.00 by Tuesday evening, but so far the pair has remained stable between the two prices with minor downticks in favor of the yen.

With Japan celebrating Children’s Day, amid Golden Week, liquidity throughout the region will be somewhat lower. The JPY could gain from this absence as the rest of global traders shift towards Europe, as well as safe havens, amid strong data releases like today’s interest rate decisions out of Europe. As for today, the JPY will be absent from the market again, meaning global investors will continue to focus their attention elsewhere, creating mixed results for the yen. But the recent shift into safe havens following expectations of an international reprisal from al Qaeda in response to bin Laden’s death has helped lift the yen and should continue to do so for the remainder of the week.

Crude Oil – Crude Oil Prices Continue Dropping; $107 in Sight?

The prices of Crude Oil ended Wednesday lower as traders largely began to speculate an imminent reprisal from al Qaeda following Osama bin Laden’s death. The result has been a moderate dip in stock prices, also weighing on the price of assets like oil, silver, gold, and a variety of industrial metals. The biggest gainers on the day were the Swiss franc and Japanese yen, making strides from the shift in sentiment.

Recent events have made speculating about oil prices more difficult. The plummeting value of the US dollar should have helped lift oil prices, but the commodity remains in free fall for the second consecutive day. Rising stockpiles in the United States, reported yesterday, may have helped fuel the shift away from oil as rising inventory tends to suppress price hikes. As for the rest of the week, oil prices actually appear on the downside, with targets near $107 a barrel in sight.

Technical News

EUR/USD

Over the past few days the EUR/USD pair has been trading within a restricted range, between the 1.4750 and the 1.4950 levels. Currently, as a bearish cross is taking place on the 1-hour chart’s Slow Stochastic, it seems that the pair might be on its way towards the 1.4750 level.

GBP/USD

After falling about 300 pips since the beginning of the week, the cable has stabilized near the 1.6500 level. In addition, as the 4-hour chart’s RSI has crossed the 30-line and continues to point upwards, it seems that a bullish move could take place today, with the potential to erase recent declines. Going long with tight stops might be the right strategy today.

USD/JPY

The USD/JPY continues with its free-fall, and is currency trading near the 80.40 level. In addition, as all oscillators on the daily chart are providing bearish signs, it seems that the downtrend is likely to continue today, with potential to reach the 79.00 level.

USD/CHF

A very accurate bearish channel has formed on the daily chart, and the pair is currently trading in the middle of it. Nevertheless, a bullish cross taking place on both the daily and the 4-hour charts’ Slow Stochastic, suggests that a bullish correction may occur. Going long might be the right choice today.

The Wild Card

Crude Oil

Crude oil fell about 650 pips over the past few days and is currently trading near $109 a barrel. However, as both the MACD and the Slow Stochastic on the 1-hour chart are providing bullish signals, and as the 4-hour chart’s RSI is pointing upwards, it seems that crude might begin to correct its losses today. This might be a good opportunity for forex traders to catch the bullish correction at its beginning.

Forex Market Analysis provided by ForexYard.

© 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.

EURUSD broke consolidation on up side and reversed from daily resistance (1.4935) and retraced 61.8% (1.4837) of 1.4774 to 1.4739, extesnion1.4982-1.5039, also up trend line pass there. EURUSD break of 1.4809 supports next will be 1.4741 on intraday. In EURUSD strong resistance is at 1.4887, if break of this resistance further going up side toward 1.4983 on intraday. EURUSD won’t break of 1.4887 resistances then possible going down side toward 1.4729 as minor support, otherwise up trend remain same. EURUSD reversed 78.6% (1.2984) extension 127.2% (1.4750), 161.8% (1.5350) of 1.4288 to 1.2579 still in progress.

New High:  1.4883, 1.4966, 1.4910.

New Low:  1.4718, 1.4801, 1.4745.

Pivot Point: R3-1.5011, R2-1.4948, R1-1.4909, PP-1.4847, S1-1.4784, S2-1.4745, S3-1.4682.

Being support by 1.6431, GBPUSD rebounded from 1.6451, suggesting that a cycle bottom is being formed on 4-hour. Further rise would likely be seen in a couple of days, and target is at 1.6745 previous high. However, a breakdown below 1.6431 support will indicate that the uptrend from 1.5936 (Mar 28 low) has completed at 1.6745 already, then the following downward movement could bring price back to 1.6250 zone.

Daily Forex Forecast

Now that the uncertainty that comes with the constant threat of defeat of the previous minority government has been set aside for at least the next four to five years, the Canadian dollar is quickly establishing itself as a top choice for investors. Canada has had a succession of minority governments over the past seven years but with the emergence of a Conservative majority government following Monday’s federal election, investors are expected to once again turn to Canada and the Canadian dollar as choice investment opportunities.

Known as the “loonie” for the waterfowl depicted on the back of the one dollar coin, the Canadian currency is expected to gain from strong fundamentals and the stability of a government that no longer faces the constant threat of being tossed out of office by a collection of the opposition parties. This new political landscape, together with Canada’s reputation of sound fiscal management that saw the country through the recession better than most of its contemporaries, is earning Canada rave reviews on the markets.

Only days after the election, PIMCO’s Bill Gross, who manages the world’s largest mutual fund with assets exceeding US$240 billion as of the end of 2010, offered a rousing endorsement for both Canadian and Australian bonds. Gross suggested that rather than U.S.-denominated securities, his clients should look at some of the developing economies with “more pristine” balance sheets and higher interest rates. On the other hand, Gross noted that “if AAA quality is your requirement, then Canadian or Australian bonds may also fit your horizon.”

The Loonie’s Bullish Forecast

After contracting by 0.2 percent in February following four straight monthly gains, a recent Bank of Canada report stated that the economy will likely return to growth in the second quarter. Early estimates are for an annualized rate of growth of two percent for the three months ending in June; The International Monetary Fund was even more bullish on Canada predicting the economy will grow by 2.8 percent for the year.

As usual, it will be the export of in-demand commodities that drives this growth and Canada is well-positioned as a leading supplier of goods ranging from oil and energy, to copper and wheat. The one cautionary aspect is that the U.S. accounts for roughly 70 percent of Canada’s exports and while growth is slowly returning to the U.S., prospects for a full recovery south of the border are far from a done deal.

This realty is less of an issue today than it would have been twenty years ago as Canada has forged strong trading relationships with other countries in recent times. Most notably, many of the emerging Asian economies are particularly eager to acquire the goods and resources produced by Canada and this has opened up additional export market opportunities. Coincidently, this is just one of the reasons why Canada was able to get through the recession in reasonably good shape and this will continue to serve Canada well as the global economy continues to expand.

Finally, with the level of growth being predicted, the prospect of an interest rate hike certainly comes into play and the Bank of Canada has already said it expects inflation to be near the Bank’s target of 2 percent. If the Bank does raise rates late in the year, demand for the loonie will grow and several analysts have suggested the Canadian dollar is in line for gains against most of the major currencies and the U.S. dollar in particular. ING has suggested the loonie could strengthen from the current 95.25 cents to the U.S. dollar to 92 cents by the end of the year.

Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog