FOREX TRADING

U.S. Economic Turning Point? Maybe, But Not Yet

The NFP report created a strong wave of long dollar orders into the currency market, as the labor market showed the first signs of improvement in two and a half years, since the unemployment rate bottomed in the 4.5% region in mid-2007.

The November NFP report showed that the U.S. economy shed only 11K jobs, the least in almost a year, while the unemployment rate fell 0.2%, down to 10.00%. However, it should be noted that the infamous Birth/Death model added 80K in November and approximately 1200K (1.2M) jobs over the last three months. The birth/death model is used by the BLS to reduce sampling errors, but over the time, it has produced more question marks than actual answers.

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US Dollar: Will a Recovery in Liquidity Usher in a Breakout?

Fundamental Outlook for US Dollar: Bullish

- Nonfarm payrolls contracted at a slower pace in August, but the jobless rate jumped to a new 26-year high
- Fundamental dollar traders will have to look to market sentiment rather than fundamentals for direction
- Majors tax dollar support as the threat of a breakout looms next week

Liquidity has been the bane of currency traders’ existence this past week; but a gradual return to normalcy may finally allow the dollar and general risk appetite to find its bearings once again. Even a perfunctory glance at a EURUSD chart conveys exaggerated congestion. This pair – and indeed all of the majors – has been relegated to a controlled range or gradual channel for the better part of three months. Now, passing through the extended Labor Day weekend holiday in the US, we are encountering the worst of the unusual market conditions. It wasn’t by chance that the dollar tumbled to test its lows through this past Friday’s close. At critical levels, the speculative ranks could either attempt a break against the dollar while most of the American market is offline or wait for the liquidity pool to deepen and instead work to reconcile the divergent outlook between fundamentals and risk appetite. (more…)

The dollar was slightly more volatile over the past week than usual, and the explanations for this have been getting trickier by the day. As for this week, forex traders are advised to take positions on trades, as a string of data releases coming out of U.S., Europe and Japan are likely to affect the greenback’s main currency crosses.

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US Dollar Consolidation Bound to Yield Breakout This Week

Fundamental Outlook for US Dollar: Bullish

- Conference Board consumer confidence surprisingly surged to a 3-month high in August
- Despite revisions, the University of Michigan’s consumer confidence index fell slightly
- US durable goods orders jumped by the most in 2 years, but excluding autos, gains were muted

The US dollar ended the past week on a mixed note across the majors, losing against the New Zealand dollar, Australian dollar, and Japanese yen, but rising versus the Swiss franc, euro, Canadian dollar, and British pound. Ultimately, this amounted to little more than a continued period of consolidation, as the US dollar index remains above a rising trendline connecting the July 2008 and August 2009 lows. Nevertheless, trading conditions have been extremely difficult, even for those that thrive on range trading, as the low volumes so often associated with the “summer doldrums” create highly choppy price action, and this may remain the case throughout next week ahead of the US Labor Day holiday.

There are a number of indicators due out over the next week that could trigger breakouts for the US dollar. On Tuesday, the ISM manufacturing index is projected to rise above 50 – the point of neutrality – for the first time since January 2008, which would suggest that the sector is finally experiencing a legitimate recovery in business activity. Indeed, the US government’s “cash for clunkers” program has been a boon for the auto industry and for manufacturers in general, but since the program formally ended on August 24, there could be a noticeable drop in output in coming months. Regardless, a strong ISM manufacturing reading would bode well for the US dollar. (more…)

Do the Dollar’s Non Farm Payrolls Rally Have Staying Power?

Fundamental Outlook for US Dollar : Bullish

- Payrolls drop the least in 11 months and the jobless rate ticks lower for the first time since April of 2008
- Person spending contrasts at its fastest pace in four-and-a-half years, jeopardizing spending and a recovery
- The US dollar pulls itself back from wide-spread bearish break, but is this a true reversal?

The US dollar got on track to plummet to new lows for the year at the start of last week; but what a difference one indicator and some hours’ worth of speculative-heavy price action can have. Last Monday, made the bearish break that the battered currency had been flirting with for weeks. Nevertheless, this break wasn’t catalyzed by any specific fundamental driver; nor was it supported by a meaningful trend in risk appetite. Without the necessary fuel to push the dollar to new lows, it would instead stall on the other side of its key technical level for a real fundamental driver to reverse the currencies fortunes and possibly totally change its future. On the other hand, this fledgling rally could prove to be just as feeble as the previous plunge should an underlying fundamental driver not step in and take control. One of the reasonable drivers for a true bull trend, either the dollar will have to break its ties to investor sentiment (as a safe haven currency) or risk appetite will have to collapse. (more…)

The U.S. Dollar is expected to go extremely volatile today on the release of the ever so important U.S. Non-Farm Employment Change at 12:30 GMT. The other releases that are expected to drive trading between the USD and its main crosses today are the British PPI Input at 08:30 GMT, the U.S. Unemployment Rate at 12:30 GMT, and the Canadian Unemployment Rate at 11:00 GMT. Forex traders are advised to open their USD positions now, prior to the release of the vital economic data from the leading economies. (more…)

The currency markets are probably to look past the releases of Swiss unemployment, German industrial production and trade figures, and UK PPI to focus on the upcoming US Non Farm Payrolls report due late into European hours. Australian news was mixed the overnight session as the RBA talked up rate hike up possibilities while the construction sector shrank the most since April.

Key Overnight Developments

• Australia’s Construction Sector Shrinks Most Since April
• RBA Hints at Rate Hikes But Traders Not Convinced

• Euro, Pound Little Changed in Overnight Trading (more…)