A stunning day of trading took place on Friday as the USD advanced against all the major currencies on the back of a better than expected Non Farm Employment Change report. On a day that saw the greenback make strong gains, what stuck out for currency traders was the fact that equity markets turned in positive performances as well. This calls into question whether Friday was a reversal in trading sentiment. Since the collapse of Lehman�s bank last year the USD has essentially traded in an inverse manner against the results from Wall Street. After a month of solid strides in U.S. equity markets and the greenback being pushed back, a sudden turnaround took place going into the weekend. The move the USD turned in will set off alarm bells among traders who will have to be extremely attentive in the coming sessions due to this apparent divide which has emerged and the different avenues it could produce.
The Non Farm Employment Change figure turned in a number of minus -247K compared to the estimate of minus -320K. While this outcome is still negative, it does raise the volume from among the optimists who have been saying that the worst of the recession is over and that stability is beginning to take place. The Unemployment Rate was also released on Friday and it turned in a number of 9.4%, again beating the forecast of 9.6%. After trading at the weaker part of its ranges against many of the major currencies, the USD was able to make a strong push on Friday, and though it still finds itself in the midst of lower value its gains will raise the eyebrows of many investors. There will be no major economic data released from the U.S. today and tomorrow will be relatively light, however Wednesday will see the FOMC Statement and investors will attentively read over the Federal Reserve�s insight and try to decipher their outlook for economic prospects. Having enjoyed a remarkable day of trading on Friday, traders will be keen to examine the USD closely today. They will look to see how the greenback does compared to the results from the equities markets and try to decipher if Friday�s results were a one-time event or a new and important development within its trading parameters.
EUR:
The EUR continued to lose ground on Friday to the USD but it occurred under the bright glare of better than expected U.S. data. The German Industrial Production was the only economic report from Europe of consequence and it turned in an outcome of minus -0.1% compared to the forecasted gain of 0.6%. Today the French Industrial Production number is due and it carries an estimate of minus -0.1%. Also the broad Sentix Investor Confidence reading is on schedule from the European Union. Tomorrow inflation data will be brought forth from Germany. The EUR traded in a very dollar centric mode on Friday and though it did lose ground to the USD it still remains within the higher breaths of its range. One of the main traits of the EUR in the past month has been its strong correlation to increased risk appetite but Friday�s trading shows that this does not always work. The question not only becomes whether the EUR will return to this characteristic but could it actually succumb to questions about the European Union�s ability to pull itself out of a deep recession compared to its counterparts?
GBP:
The Sterling was taken lower against the USD on Friday but does remain in the upper reaches of its rather strong range. The U.K. released its PPI Input and Output data on Friday and the Input number produced a negative -1.4% against the expectation of minus -0.8%. The data raises questions about deflation in the U.K. and this problem is one that is shadowing most of the major economies currently. Today the BRC Retail Sales Monitor is on schedule and last month�s figure turned in a gain of 1.4%. Also the RICS House Price Balance numbers are anticipated and it carries an estimate of minus -9.8%, which would be a better outcome than the previous report. Tomorrow the U.K. will release its Trade Balance statistics. The GBP has had a stellar five months of trading and although it did lose some ground to the greenback on Friday it will take more than one day of trading to prove that it is suddenly going to reverse for a long duration.
JPY:
The JPY did lose significant ground to the USD on Friday in a round of very interesting trading. The JPY and USD has been in a notoriously tight range for some time now, but on Friday upon the strong gains of not only the equity markets but too the USD � the JPY seemed to lose the ability to keep its grip on what had been a consolidated range. The JPY has not gone below critical measurements against the greenback but does find itself on the weaker side of its band for the first time in a while. The JPY and USD will get plenty of attention today.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
Technical Analysis
EUR/USD:
The Bollinger Bands are tightening up on the daily chart, indicating decreased volatility. RSI and Momentum are still negatively sloped indicating further bearish movement today. Both the daily and the 4 hour chart support a bearish notion and a breach through 1.4130 will validate a larger bearish move. Support level: 1.4130 Resistance level: 1.4250
GBP/USD:
The 4 hour chart shows that the bearish channel continues with strong downward momentum as the pair now floats around 1.6630. Oscillators show that the momentum is still bearish and a breach through 1.6590 will validate a bigger bearish move. The RSI is also forming back into bearish formation and supports the general notion. Support level: 1.6590 Resistance level: 1.6720
USD/JPY:
On the one hour chart the Stochastic Slow is crossing at the 82 level and the RSI is at the 87 level which indicates that we are in overbought territory. In addition the 4 hour chart also gives bearish signal. The preferred strategy today will be a short position.
Support level: 96.50 Resistance level: 97.90
USD/CHF:
There is a very strong bullish trend developing on the 4 hour chart. This pair has now breached the very strong resistance level of 1.0790 and we expect further bullish movement. Therefore buying on dips seems to be preferred today. Support level: 1.0790 Resistance level: 1.0850
The Wild Card
Crude Oil:
Crude Oil has been dropping over the last trading day and all the indicators support further bearish movement. Forex traders will be able to maximize gains today by entering a short position before we see a correction.
Support level: 70.10 Resistance level: 71.90