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Central Banks and Jobless Numbers

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Nov 5, 2009.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex

    The USD slid back to the lower cusps of its ranges against the major currencies on Wednesday. The greenback started its rather weak journey in early trading and it performed rather sluggishly throughout the day. Even as the ISM Non Manufacturing PMI data turned in a reading of 50.6, below the estimate of 51.6 and the ADP Non Farm Employment Change numbers were worse than expected, the USD took a beating. Significantly, the Federal Reserve released their FOMC Statement late in the day and investors correctly predicted that the Fed would continue its dovish stance. Interest rates are going to remain low for an extended period of time and the Fed also said that the economy is showing signs of improvement while issuing a cautious tone. This message is practically a replay of all FOMC communications since the beginning of the July.
    Today the U.S. will release its weekly Unemployment Claims and the figure is anticipated to do slightly better than the last week’s result. The jobless picture in the States remains a critical lynchpin for consumers and investors. Tomorrow’s Non Farm Employment Change statistics is a potential catalyst for volatility if the outcome does not meet expectations. Wall Street has turned in a fairly turbulent two weeks of trading providing a multitude of swings. Caution in one sense will likely prevail until all the employment numbers can be digested tomorrow. This may put the USD in a position to range trade against the other major currencies. The greenback finds itself on its heels and many analysts are chiming in with their opinions as to why the currency is facing so much pressure. Going in to today’s and tomorrow’s trading the USD may find that a wild ride awaits it.

    The EUR outperformed against the USD again on Thursday and accomplished this as economic data from the continent continued to be less than inspiring. The PPI figures showed a deflationary result of minus -0.4% compared to the estimated fall of -0.3%. It is true that the Final Services PMI reading was 52.6 versus the forecast of 52.3 and thus a slight improvement. This all sets the table for the European Central Bank’s monthly meeting today, which is not expected to provide any great musings. The ECB is likely to follow in the footsteps of its cousins, the BoE and Fed. and provide a statement that pretty much goes something like this, ‘we see the economy stabilizing, there are concerns that we remain cautious about, and for the time being interest rates are at their appropriate levels.’ If President Trichet steers much further away from that - than it would be news. Another interesting number to watch today that will likely get NO attention is the Retail Sales figure from Europe, which is expected to see a gain of 0.3%. The EUR has done well and every time the USD has seemingly put up a challenge, the EUR has managed to bounce back. As long as optimism about a recovery outweighs concerns, this scenario may continue to play out.

    Sterling continued its quick surge on Wednesday against the USD. The U.K. did release its Services PMI data and it turned in a stellar reading of 56.9, which was well above the estimate of 55.4. The crux of the story today for the GBP will be the Bank of England meeting. While no change will come about for the Sterling (if it does investors all over the world will fall out of their chairs), what people will be on the outlook for are any clues about changes being made to quantitative easing. The question is if anything of substance will really be said however. The BoE policy like its brethren is pretty much set in stone and is likely to remain that way until bona fide proof of sustainable economic growth can be shown. The Sterling may see a rather cautious range leading up to the Bank of England’s announcement today, but traders will have to be ready for any sudden bursts that could develop taking into consideration the GBP’s good performance so far this week.

    The JPY languished in a fairly consolidated pattern in yesterday’s trading as international equity markets showed a slight increase in risk appetite. Another sign of the weariness that exists within the Japanese economy was apparent when Toyota announced on Wednesday that they would pull out of Formula 1. While this measure will allow Toyota to show a better bottom line it does highlight that significant concerns remain regarding forecasted revenues for the coming year. The JPY is at the higher end of its range against the USD and today’s and tomorrow’s economic risk events from afar could propel it if there are sudden surprises.

    Silver Has Yet To Outshine Its Big Brother

    The market began November 4th with a strong push back up; only to fizzle out and end the day near November 3rds close. So, in essence, nothing really happened. But when we analyze this market on a technical basis, we know that with every bit of weakness buyers seem to pull out there check books, we can see that finally, the daily candle closed above the downtrend line and is showing some potential of perhaps finding some support here. However, be cautious as today was special because of the FOMC meeting. Technically tomorrow should trade lower, and we should return to a state of weakness. Play this trade with caution as a bounce off the downtrend line could occur, but if dollar strength continues, this market should continue to struggle with maintaining its footing on the ever more slippery slope. Support 1045.5, 1029.4, 1019.6, 1009.1, 992.25 Resistance 1061.9 1073.2, 1081.5, 1086.2, 1095.8, 1101.4, 1132.2, 1153.8

    Yesterday I wrote: Now this holds true today, as we did break new highs, and traded very nicely considering the FOMC data etc!
    “Going for the Gold, this market is acting like a true champion. Weakness has been met by nice steady buying, and traders began to accumulate this commodity as it neared the 1024 support level. Once we held over 1042.5, there was a great opportunity to get long, and be positioned to profit from the powerful move that we anticipated. It is difficult to get in at this point and we will wait for some more consolidation before we add to our position. Place your stop around 1084.34 Support 1088.25, 1085.70, 1079.25, 1070.6, 1066.1, 1049.05, 1042.5, 1034.8, 1024 Resistance 1097.53 1100 …… !”

    This trade hit 1.6597 before slowing down. Now that we have identified the fact that we are trading a channel, selling resistance and buying support is the strategy that we should take. 1.6478 is our closest support level, but continued strength in this market should take us to 1.6741. At that point the ebb and flow of the trading channel should pull us back down to support of 1.6249. Support 1.6507, 1.6454, 1.6398, 1.6328, 1.6249, 1.6119, 1.5776 Resistance 1.6597, 1.6604, 1.6692 1.6741, 1.7042.

    What I would like to point out in the silver market is that while Gold keeps breaking new highs, Silver is trading $4 lower (almost 20%) lower then its all time highs! This is quite a discrepancy. XAG/USD may have always lagged behind its flashier, in your face, big brother, but at the end of the day, Silver as a commodity, has greater value. Silver is a functional commodity used throughout many industries, while Gold is just a shiny object (that’s a bit of an understatement, but its important to understand the difference between the two metals). So when looking at the weekly chart, I know that if gold keeps pushing higher, at some point soon, silver will have to start catching up. On the other hand, this could be a signal suggesting that the run up in Gold needs to take a longer break than the one we experienced over the last couple of weeks. At the moment, technically, it looks like the XAG is going to push higher. We need to hold support of 17.22. Support 17.22, 16.77, 16.07, 15.53, 14.73 Resistance 18.09, 19.46, 21.34

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