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FX Daily Update

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Dollar and Markets in Anticipation of NFP

Fri, Aug 7 2009, 11:39 GMT
by Lena Manousarides

SpikeCharts

The big day is here once again, with market participants ready to get all the information they need from the employment sector in US, as we have payroll data and unemployment rate. There are speculations that the unemployment rate will reach 26 year highs today, and this is what drives stocks and equities lower since early yesterday. The dollar has managed to stage a mini comeback yesterday and so far traders are in a wait and see mode amid the releases in couple of hours.

The EUR/USD seems to be trading in standstill since yesterday and the 1.44 level has worked as a temporary top for now. As long as 1.4430 holds, there may be further deterioration in the pair all news dependant. Traders are waiting to see how the payroll number will be and what it means for the current economic situation, however due to the recent euphoria that we all witnessed these days, if the data suggest further contraction, the dollar may continue to rise due to risk aversion. On the downside, we have 1.4230 which is a very good support level for the pair and if that breaks, we may see further slide towards 1.40 in the coming weeks. Please note that levels to be considered for today’s move after the numbers are: 1.4230 – 1.4430. We need the pair to break from these ranges if we want to see further price action.

The economic calendar had a few announcements out of Euro zone and UK, with PPI out of UK coming out much worse than expected and giving the pound another reason to fall, after BOE’s King said that the economy needs further stimulus plans in order to be revived. The current feel in the country is that although economic numbers were better in the previous days, nevertheless the situation has not changed dramatically and the inflationary numbers suggest that interest rates may have to stay low for longer than initially anticipated. Also later on we have the payroll data out of US which is expected to be better than last month at -320.000. If the number gives us a pleasant surprise closer to -200.000, that may suggest a recovery is underway and slowly we may eventually see positive numbers in the coming months. The important bit of information today will be the unemployment rate as recently has climbed to new yearly highs. The markets are expecting the number to soar even more, and this may put pressure even if the payroll numbers are better. The trading action may be choppy until traders filter all news after the announcements and decide how to play it.

It is important to note that from now on, we need to really pay attention to all banking results and economic numbers, as market participants are all hyped for a market recovery and speculators are making their plans for big moves up in the coming weeks due to the so called end of recession. Things may stabilize from now on, however it is not advisable to start running before we know how to walk, as the risk to the downside is always imminent at fragile times like the ones we live in. The summer is progressing, many traders are away on holidays and therefore trading action tends to be either extreme or nonexistent. The best way to go is to follow the market trend on a daily basis and only if we see real signs of longer term trend forming, to stay in and enjoy the ride.

Let’s see how the week closes today after the data and if the last few negative days are a small dent for now, before another move up next week…

Published on  Fri, Aug 7 2009, 11:40 GMT