• Home ::
• Technical ::
• Forex Strategy ::
• Forex Trading Strategies

• Send
• Print
• Add To
• Rss

Forex Trading Strategies

f77a1d4d-30ec-4153-8b56-886fc8a84dff

0

0

USD strength impresses ahead of US employment report

Fri, May 2 2008, 07:22 GMT
by John Hardy

Saxo Bank

USDCAD breaks initial resistance yesterday on collapsing oil prices - time for a range break?

MAJOR HEADLINES – PREVIOUS SESSION

• US Apr. ISM Manufacturing out at 48.6 vs. 48.0 expected and 48.6 in Mar.

• US Mar. Construction Spending out at -1.1% vs. -0.7% expected

• Australia Mar. Retail Sales out at 0.5% vs. 0.3% expected

• Germany Mar. Retail Sales out at -0.1% vs. 0.6% expected

THEMES TO WATCH – UPCOMING SESSION

Key Risk Events (All times in GMT)

• UK Apr. HBOS House Prices (0700)

• Switzerland Apr. SVME PMI (0730)

• EuroZone Manufacturing PMIs (starting 0745)

• UK Apr. PMI Construction (0830)

• US Apr. Change in Nonfarm Payrolls (1230)

• US Apr. Unemployment Rate (1230)

• US Mar. Factory Orders (1400)

Market Comments

Yesterday, we expected the USD weakening to continue a bit before turning stronger ahead of 1.6000 in EURUSD due to the reaction to the FOMC meeting and guidance. Instead, the initial USD weakness dissolved very quickly and the EUR provided little resistance to the strongly rallying greenback. This was an impressive performance by the USD as the dollar index shot through and closed above its 55-day moving average for the first time since early February. It would seem that we either need to find support here in EURUSD or that we see a dramatic further swoon in EURUSD to test the 1.5000 area in short order. The odds on the latter scenario have risen considering the broad-based USD strength.

All eyes will be on the US employment report today, but considering the very low expectations, an upside surprise is the easier scenario than the opposite. This does not change the long term idea that US unemployment will continue to tick higher for the next 18+ months, just a bit of spin on today's report.

The monster rally in equities yesterday frustrated our attempt to suggest that the rally in risky assets is nearing a close. JPY crosses rallied strongly from a deep sell-off. If this rally in equities keeps up, the 105.00 level in USDJPY will have a hard time holding as resistance and we ay have to start looking further north for a top to the rally - perhaps 108.00 or 109.00 on a close above 105.00 (underline the word "close" in that sentence, if you will). Any rally extension for risky assets, however, should it materialize, still doesn't alter our longer term conviction that the market's positive mood is misplaced.

The last few sessions have been an interesting test for the commodity currencies for seeing where their allegiances lie. Normally, one would expect a strong Aussie, for example, on the back of heady gains in equities, yet AUDUSD is breaking through very key 0.9300 support this morning and is even down vs. the Euro. Clearly, the focus is on the sharp drop in commodities prices instead (and in turn, the recent commodity price drop shows that commodity traders are more concerned with the USD than with positive vibes about a possible recovery.). USDCAD is a similar story - recent rate differential moves strongly favor the USD in this equation, but only the collapse in crude prices in recent days has finally seen the CAD on a weaker footing (see more below).

Chart: USDCAD

USDCAD has been stuck in a range for an eternity. Recently the pair found support at the converging 55-day and 200-day moving averages. Will the USD rally and energy sell-off finally see the pair break the topside of the range? The break of the 1.0210 resistance yesterday was a bit tentative, let's see if we can get a follow up move through higher today. More important for the bigger picture will be a break of the 1.0325/75 band of resistance, which would give the pair full bull market credentials.

Published on  Fri, May 2 2008, 07:45 GMT