Fireworks Will Start Early In U.S.


Master Trader
Jun 7, 2009
by mercaforex

The USD lost ground within range trading yesterday as the currency markets essentially set themselves up for today’s jobless data. The ADP report came out on Wednesday and promptly shot another round of bullets at optimists. This poor data however did not make investors in the equities markets runaway, in fact they took the Dow and the S&P higher. The Non Farm Employment Change numbers today may be the biggest report of this year, considering that the equity markets have had a good run since March and managed to keep much of its gains. A number of minus -360K is forecasted today, last month’s number was minus -345K. June’s Non Farm report produced a better number than expected but it was the Unemployment Rate jumping that kept the markets cautious and fed market sentiment the entire month. The Unemployment Rate will be brought forth today also and a result of 9.6% is the estimate.
Today’s data has been the subject of speculation for weeks now. The White House fueled the discussion a couple of weeks ago when President Obama warned about high unemployment. An Unemployment Rate near or above 10% serves as an extremely weary place for bad sentiment, if this mark is neared today it could send the equity markets into a tailspin. Yesterday, investors basically shrugged off the poor ADP numbers and the bad results from Pending Home Sales keeping values in a cautious range. The markets have somehow been able to be nonchalant about a considerable amount of lackluster data the past month, how long can they keep that up? Housing and unemployment releases have not been fantastic. If the jobless numbers today are poor it could be the proverbial spark that serves as the motivator for trading unrest in July. Sentiment has been on a razor’s edge the past few weeks and there has been considerable grist for debate. With the Americans on holiday tomorrow this could be an extremely hectic day in the currency markets, if the Non Farm Employment Change number is poor and equities get hit, the USD could find a lot of takers.

The EUR gained on the USD in cautious range trading on Wednesday. The Germans released their Retail Sales figures and it produced a gain of 0.4%, better than the projection. Also the European Final Manufacturing PMI was published and had a result of 42.6, slightly above the estimate of 42.4. While the EUR will be affected by the risk events taking place across the ocean today, the ECB will get into the act also. The European Central Bank is holding their fiscal policy meetings and is almost a dead certainty that they will not change their interest rates. However investors and other interested parties will watch the press conference held by ECB President Trichet closely to see what he speaks about and what he does NOT speak about. There have been considerable grumblings in Europe that banks have not been lending money to businesses in a ‘proper’ manner, but this comes under the potential cloud of a credit crunch that may be affecting financial institutions in a way the public does not understand. The tone of the ECB meeting will be important for EUR investors as they look onto to see if more optimism is offered or a cautious approach is delivered. The EUR has thus far been able to maintain the gains it has made against the USD since March and investors may be asking themselves if this has been a realistic trend.

The Sterling had a mixed day against the USD. The Manufacturing PMI data was released and provided a result of 47.0, better than the projection of 46.4. The Halifax HPI has again been postponed and is now tentatively scheduled for Friday which leaves only the Construction PMI data for today and it carries an estimated reading of 46.1. The events in the U.S. today will put the GBP in a dollar centric mode and its trading could potentially see a broad test of sentiment after the jobless data. Tomorrow the Services PMI is on schedule from the U.K. along with the Halifax report. Today’s volume could be significantly larger than tomorrow’s but Sterling traders will be a nervous bunch these two days.

The JPY experienced a day of consolidated movement going into today’s rather large day of data from the States. International equities turned in a mixed day of trading and showcased that investors are basically taking a wait and see approach. The JPY and USD have turned in a notoriously consolidated range as of late. This has a lot to do with the belief that both currencies serve as a safe haven, with this in mind the trading in the pair has produced a rather unexciting dynamic.

Technical Analysis
On the 4 hour chart the Oscillators are beginning to slope negatively indicating a possible correction. In addition the Slow Stochastic on the one hour chart is crossed at the 80 mark indicating that we are in overbought territory. Therefore the preferred strategy today will be a short position.
Support level: 1.3940 Resistance level: 1.4190.

The RSI and Momentum on the daily chart are negatively sloped which supports bearish movement. On the one hour chart the Slow Stochastic has also crossed at the 79 level indicating that we are in overbought territory and that a correction could be on the horizon. Therefore the preferred strategy today will be a short position.
Support level: 1.6290 Resistance level: 1.6550.

The one hour chart show that the pair is in a bullish configuration as volatility is increasing. However according to the daily chart this pair is moving without a clear trend and swinging around RSI at the 50 level implying the range movement. The target is expected to touch in and around the 96.90 level.
Support level: 95.50 Resistance level: 97.10.

The Bollinger Bands are tightening up on the daily chart, indicating decreased volatility. RSI and Momentum are positively sloped indicating bullish movement today. Both daily and 4 hour chart support a bullish notion and a breach through 0.8110 will validate a larger bullish move.
Support level: 0.7990 Resistance level: 0.8150

The Wild Card
Crude oil
• According to the hourlies, the downtrend the crude oil is going through seems to be very strong and the 4 hour chart validates that there is still room to run. The daily chart is also confirming that the downward momentum is still quite strong and that 67.10 is the next valid target. Forex traders may be able to maximize gains today by entering a short position.
Support level: 67.90 Resistance level: 72.50.