Forex Go!

This morning’s much anticipated Non Farm Payrolls report disappointed the market which sent the US dollar careening lower. While the unemployment rate held steady at 9.5%, this is probably more of a function of discouraged workers leaving the workforce. For the month of July, the US economy lost 131K jobs, nearly twice the expectation of a 65K loss.

In addition, the revisions to last month’s data came in nearly twice as bad as reported in what is becoming a familiar pattern. But the US isn’t the only country with bad employment figures today.

In Canada, the unemployment rate rose .1% to 8% as the Canadian economy lost 9.3K jobs, which is the first loss in 2010.

This report sent equity index futures and commodities lower, as well as the US dollar. Under a “normal” risk-aversion scenario, one might expect Dollar strength. However, there may be a “silver lining” in this jobs report, as the creation of private sector jobs came in higher.

So what started out as risk aversion, may be flipping around to risk appetite due to Dollar weakness.

In the forex market:

Aussie (AUD): The Aussie is actually higher after the initial downturn due to risk aversion, but now Dollar weakness is driving the market. (click chart

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Concerns that the Fed may engage in more quantitative easing is sending the U.S. dollar lower in currency trading on the FX market. Worries are that the Fed may move away from balance sheet reduction in favor of more economic stimulus.

So far, the economy has recovered but slowly, with the latest news out about stagnant incomes and consumer spending once again raising questions about job market recovery — and about economic recovery in the U.S.

As a result, the U.S. dollar is heading lower on the fundamentals. Even though risk appetite is fading from the FX market today, the dollar is not getting a boost, since traders are considering the fundamentals, and the possibility that monetary easing continues to weaken the U.S. dollar for the long term.

Earlier this morning, both the ECB and the BOE left interest rates unchanged.  While this move was largely anticipated, comments from the ECB show that economic progress is being made; evidenced by better than expected factory orders in Germany.

Here in the US, Initial Jobless Claims came in at 479K vs. an expectation of 455K showing signs that the employment picture is still weak and worsening.  Tomorrow’s Non Farm Payrolls Report will be the rubber match and the ultimate decider of economic condition of the US.

Speaking of bad employment figures, last night New Zealand reported a worse than expected unemployment rate, sending the Kiwi lower as the worst performer this morning.

So this morning is a bit of a mixed bag, with fundamental data driving the marketplace more so than risk themes.  There is significant US dollar weakness, yet Canadian dollar strength.  The Japanese yen is also showing strength, as is the Euro.

In the forex market:

Aussie (AUD):   The Aussie is lower this morning on a lack of risk appetite as its neighbor NZ reported dreadful employment figures.

Kiwi (NZD):  The Kiwi is the worst performer this morning as worse than expected jobless figures have soured speculation that further rate hikes may be forthcoming.  The unemployment rate went up to 6.8% vs. an expect

Read more…

USD/CAD (a daily chart of which is shown) as of Thursday (8/05/2010) morning, after having broken down below the large triangle early in the week, has followed through on its bearish momentum below key 1.0200 support and down to approach further support in the 1.0100 price region, establishing a new 3-month low in the process. For more USD\/CAD technical analysis, please click here.
 
James Chen, CTA, CMT

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***Economic Data***

– (RU) Russia Money Supply w/e Jul; 26th: 5.13T v 5.13T prior
– (FI) Finland May Final Trade Balance: €160M v €190M prior
– (GE) Germany Jun Retail Sales M/M: -0.9% v -0.2%e; Y/Y: 3.1% v 1.0%e
– (HU) Hungary May Final Trade Balance: €423.6M v €428.8M prior
– (SP) Spain Q2 Unemployment Rate: 20.1% v 20.0%e
– (TU) Turkey Jun Trade Balance (TRY): -5.6B v -6.1Be
– (NO) Norway July Unemployment Rate: 3.0% v 3.1%e
– (TH) Thailand Jun Current Account: $681M v $2.0Be; Total Trade Balance: $2.5B v $2.3B prior; Overall Trade Balance: $2.2B v -$989M prior
– (TH) Thailand Jun Manufacturing Production Y/Y: 21.3% v 18.5%e; Total Capacity Utilization: 68.6% v 67.3% prior; Manufacturing Prod Index: 216.7 v 205.8 prior
– (TH) Thailand Jun Business Sentiment Index: 52.1 v 49.9 prior
– (SW) Sweden Q2 Preliminary GDP Q/Q: 1.2% v 1.1%e; Y/Y: 3.7% v 3.4%e
– (SW) Sweden May Non-Manual Wages Y/Y: 1.5% v1.8% prior
– (SP) Spain May Current Account: -€4.8B v -€5.2B prior
– (CZ) Czech Jun Money Supply Y/Y: 5.2% v 4.1% prior
– (IT) Italy Jun PPI M/M: 0.2% v 0.3%e; Y/Y: 3.5% v 3.6%e
– (HK) Hong Kong Jun M3 Money Supply M3 Y/Y: 3.1% v 4.4% prior
– (HK) Hong Kong Jun Budget (HKD): -0.9B v -9.1B prior
– (GR) Greece May Retail Sales Y/Y: -1.2% v -0.4% prior
– (IC) Iceland Jun Final Trade Balance (ISK): 8.7B v 8.6B prior
– (IT) Italy July Preliminary CPI (NIC incl. tobacco) M/ Read more…

The euro is pulling back in forex trading on the currency market today as concerns about the economy become uppermost. Euro has been falling against the U.S. dollar due to profit taking after its good run earlier this week, but some of the concern is also waning risk appetite.

Concerns about economic recovery are asserting themselves as retail sales miss the mark, and as concerns about second quarter GDP mount.

EUR/USD is still above the 1.30 level on the currency market, but it remains to be seen how long the currency pair can retain its position.

By: Hillel Fuld
The USD rallied vs the EUR but declined against the JPY on Wednesday as U.S. durable goods orders were weaker than was expected and added to fears about financial recovery in the world’s greatest economy.

Also driving risk aversion was a Federal Reserve report stating that overall U.S. economic news was not improving robustly and a few areas of the United States had lost steam over the past few weeks.

The Fed’s Beige Book summary of national economic conditions, based on information before July 19, pointed to a pesimistic recovery with sluggish housing markets and declining sales of costly items like new cars.

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We’ll be receiving GDP release from Canada today along with US Adv. GDP q/q, I’d suggest to concentrate on the U.S. release first, if there is no trading opportunity there, then come back and look at the Canadian release. Here’s the forecast:

8:30am NY Time Canada GDP m/m Forecast 0.1% Previous 0.0%
ACTION: USD/CAD BUY -0.2% SELL 0.4%

The Trade Plan
I’ll be looking to BUY USD/CAD if we get a -0.2% or lower release, and SELL USD/CAD if we get a 0.4% or higher… With recent strength in CAD due to the general weakness in the USD and rise in demands for commodities, a stronger GDP should definitely add to the bullishness of the CAD. I’ll be looking for a Retracement Trade Method for this release, however, with US GDP also scheduled at 8:30am today, we’ll take this trade only when there is no conflict (better CAD release and better USD release = conflict).

Because GDP is basically the measurement of the “economy” as a whole and it certainly has a tremendous impact on the official interest rate, because better GDP equals to higher inflation, and higher inflation means higher interest rate.  However, today’s CAD GDP is likely to be overshadowed by the US release. I expect to see CAD Read more…

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