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Forex − Markets are on hiatus ahead of ECB rate decision and early NFP's

Thu, Jul 2 2009, 10:53 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets  |  View company's profile

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Forex News and Events:

After having hit a high at 1.4201 yesterday on reports the Vice-finance minister of China wasn’t aware of his government’s request to discuss use of the IMF’s SDR as an alternative. This doesn’t come as a surprise on the part of the Chinese government as we all know they are the largest holders of foreign exchange reserves and U.S Treasuries and have been very vocal about the massive spending on the part of the U.S government and it’s inherent instability for the greenback.

The NFP (12:30 GMT) number is expected to come out at -365K with some estimates going as high as -425K. The ADP report – largely considered a “pre-NFP” number was worse than expected yesterday coming out at -473K vs. -395K cons. The massive layoffs connected to the GM and Chrysler bankruptcy filings will be added pressure for the figure coming.

Meanwhile the Volatility in the markets of late have been dollar driven, pointing to a metaphoric “tug of war” between both sides of the risk divide. Furthermore, this morning’s rate cut by the Riksbank shows that we haven’t seen the last of the ill effects of this crisis. The ECB’s rate decision at 11:45 GMT shouldn’t provide any surprises, but the ensuing press conference will be closely watched by all involved to see if Trichet has a new take on the issue of hiking rates before the end of the year. The ECB’s mandate for inflationary stability is a key issue here as they have kept their benchmark rate much higher than all other major economies (1.00% instead of the near zero policy in the U.S and Japan).

The news today is expected to show that a recovery will take much longer and be much harder to realize than the “green shoots” theory predicted. A V-shape recovery is somewhat unrealistic. For the time being we see the dollar stronger on a return to risk adverse sentiment – this said the EURUSD chart is setting us up for a strong “bullish flag” which would see the dollar lower and potentially re-test the 1.4340 resistance, however this scenario could be jeopardized by today’s NFP and ECB announcements. 

Today's Key Issues (time in GMT):

11:45 EUR ECB Rate Decision 1.00% Vs. 1.00%
12:30 USD Non-Farm Payroll -365K Vs. -345K
12:30 USD US unemployment rate 9.6% vs. 9.4%

The Risk Today:

EurUsd The 1.3890 to 1.4180 range looks like holding into event risk today. A divergence signal on intraday charts implies limited upside over the next 24 hours and a chance for the market to unwind after its recent bullish sentiment extreme. The chart shows a deinfate bullish flag, but will the news out today corroborate this theory?

GbpUsd The breakout above 1.6600 tuesday was quickly overwhelmed by profit taking and disappointingly the market fell short of our 1.6830/1.6950 target zone for a top. Evidence of divergence on daily charts suggests a top is forming but the absence of other reversal signs.

UsdJpy USD/JPY has rallied out of its recent 95.15 to 96.70 range and into the upper half of the wider 94 to 99 range. With intraday momentum charts reading overbought as price presses deeper into its weekly cloud we are not expecting any further upwards.

UsdChf USD/CHF is pinned down between trendlines at 1.0630 and 1.1020. Intraday, the probability of a move outside of a 1.0765 to 1.0915 is low. 

Resistance and Support:

Published on  Thu, Jul 2 2009, 11:01 GMT

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