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Crunch Time for the Dollar!

Fri, Jan 9 2009, 12:19 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

The big day is here, with markets trading within tight ranges waiting for the BIG number to hit the news in a few hours! The dollar has lost all of the gains it printed at the beginning of the week and now trades between 1.3650-1.3750 since the European opening. There is a certain feeling amongst traders that today’s number will shake and stir things even more, as it is expected to again be -550.000 which will make over a million jobs lost in the past couple of months in the US.

EUR/USD looks poised for further gains, judging by the daily charts, and a clear break of 1.3750 might lead to important resistance levels of 1.3850-80 and even higher. Traders are in a 'wait and see' mode at the moment and after the release of the number we will see how the whole thing will play out. Post-release levels to watch are 1.3780 -1.3820 on a break to the upside and 1.3620 ahead of 1.3580 on the downside. I personally favor the upside in case the number is higher than -600.000 which may put dollar on the defensive once again.

The pound is also trading within tight ranges and yesterday's BOE rate cut proved to be another case of buy the rumor sell the fact, as we saw the sterling gain heavily before the announcement and when the news hit the wires the pound lost its steam and went south once again! It is hard for the UK currency to sustain gains in this negative environment as traders don’t know what the next day will bring in the economy. The fact rates are at their lowest levels ever puts further pressure on investors and make the pound very volatile, with choppy moves seen all across the board. From now on traders will monitor the data in order to see what the next move will be and if King's words in front of Parliament a few weeks ago regarding a zero rate policy come true!

The economic calendar has many releases to keep us going today, with the PPI and Industrial production numbers being the first out of UK this morning, printing really low numbers once again! The fact the PPI has dropped dramatically and keeps dropping, only offsets new speculations that the Bank of England may cut another 50bps in the next monetary policy meeting. Soon we have the employment numbers from Canada which are expected to be slightly better than last month, plus the big event of the day - the payroll data out of the US. The official forecasts given are between -500 and -550k, but many analysts predict the number may reach really scary levels of below -650.000. My personal feeling is also negative, only because of the recent statistics, jobless claims and the continuing deteriorating economic conditions. It will be interesting to watch the unemployment rate which may reach 7%, which together with a negative number could really give the dollar a “slap” and wipe out all recent gains.

There is always a part of me wondering if the number is really negative and bad for the economy, if risk aversion makes a strong comeback in the markets and therefore the dollar could actually benefit for it. In this environment it is rather difficult to say one way or another with certainty, however recent trading activity showed that in the past few weeks the dollar has stopped benefiting from any kind of safe haven trading, as investors have come to realize that at times of deterioration and despair, the dollar is really not the way to go, therefore they have started to buy other currencies and commodities as a hedging strategy to protect themselves against any downfall in the economy.

Markets are at a standstill at the moment, with only a few hours to go until the payroll numbers and as today is the first payroll data of the New Year, things could get rather heated. Don’t forget that until markets absorb all the information given regarding the numbers, it is possible to see many whipsaws printed, however once the message of the number is clear to everyone, we should see the continuation of the move until New York closing. Beware of any fake breakouts which are very likely to occur due to the importance of today’s number, as it's too much for speculators not to take advantage of!

Published on  Fri, Jan 9 2009, 23:05 GMT