Data on Tap - US Change In Non-Farm Payrolls.
Economical News
USD
Yesterday, the USD set a fresh 2 year low against the EUR, CAD and CHF, while gaining power against the GBP and little changing against the JPY. The mixed sentiment the USD was traded with came on the back of no particular economic release, and was rather driven by a pre-holiday/pre-jobs-report repositioning, as traders liquidated their long positions ahead of the holiday weekend and today's Non Farm Payrolls report.
Market expectations for the Non Farm Payrolls report are roughly split over whether employment growth in March was very strong or very weak. The median forecast for the report stands on 130K, while estimates range of 70K to 240K. The Chicago Mercantile Exchange NFP derivatives price in a 121.6K figure, which might be, in our opinion, a little optimistic.
Although there are several reasons to favor a positive NFP report, there is a substantial downside risk as well. Indeed, the average weekly jobless claims in March dropped 20K from February's average. The ADP payrolls processing company has also reported a 106K job growth in March. Although the previous month's ADP estimate of 57K was a pretty accurate forecast of the NFP report (the ADP measures employment growth in the private sector, and while the NFP headline figure was 97K, employment growth in the private sector was 58K), over the past 10 months the correlation between the ADP estimates and the NFP report was barely existent. Although ADP claimed to have improved statistical methods, it is still too soon to determine how reliable its estimates are. On the other hand, we have this week's ISM reports, where both ISM Manufacturing's and ISM Services' employment components dropped in March. In the Manufacturing sector, the ISM employment index dropped below the 50 level to 48.7, reflecting a contraction in this sector, while in the services sector employment growth has slowed to its lowest level in over a year. This makes us side with the pessimists regarding today's NFP report, expecting a figure in the vicinity of 90K-100K.
With both US and European markets closed for Good Friday today, liquidity is expected to be very low. To serve as a reminder, we suggest zooming out your charts to November 23rd-24th, on Thanksgiving eve. In similar low liquidity market conditions, the USD sold off against all counterparts, shattering the psychological 1.30 level against the EUR. This might very well be the case today as well, if the NFP employment report indeed releases weak; sharp price action might send the EURUSD to 1.35 level or above.
EUR
The EUR is higher all across the board, as a strong German Industrial Production report provides EUR bulls with sufficient reasons to long the single currency. The German Industrial Production Index rose 0.9% in February, on expectations of a 0.4% drop. The report was not all good; however, as a 1% downward revision to January's reading has offset the positive surprise. This was nevertheless enough to send the EUR higher, on expectations of further rate hikes by the European Central Bank.
Across the channel, the BOE has decided to leave its benchmark interest rate unchanged at 5.25%. Traders, who were split on their expectations of whether the BoE would hike its rates, punished the GBP and sent it to visit its weekly lows around 1.9660. In spite of the BOE's decision, the market is still expecting further rate hikes this quarter, which is probably the reason why the GBP sell-off wasn't that significant.
There are no significant events scheduled for release today from both economies, and price action in these two currencies is likely to derive elsewhere, most likely by the jobs report from the US. Weak US data is likely to send both currencies higher, not only against the USD but also against some of their other counterparts.
JPY
The JPY continues weakening, although no significant economic indicators were released during the past 24 hours. Recent economic indicators from Japan, such as the Tankan Tertiary index as well as inflationary measures like the Monetary Base and the Consumer Price Index indicate that the Japanese economy is still not out of the woods. While this lowers the expectations for additional BoJ rate hikes soon, the tide in equity markets elsewhere around the world fuels the appetite for carry trade's reinitiation. However, with the EURJPY once again near its all time highs, we suggest a conservative approach towards this currency.
Technical Analysis
EUR/USD
The pair is consolidating at a very high level of 1.3420, and the daily charts are accumulating buying momentum again. The hourlies are showing a very bullish flag forming on the 1 hour charts, indicating that we might see the pair reaching 1.3520, which is a very strong resistance.
GBP/USD
The daily charts are slowly sliding into neutral territory after a short period of bearishness. The hourlies are approaching oversold levels as the market price approaches 1.9700, which is a local support. Buying on dips might be preferable today.
USD/JPY
There is a very clear bullish channel pattern forming on the 4 hour chart, as the pair is approaching the upper level of 119.10. Although the general direction is up, there might be a local correction towards the 117.80 levels before the trend continues.
If a break beyond 119.10 occurs, we might see the pair reaching the 121.00 level very soon.
USD/CHF
The pair has been bouncing back up after hitting 1.2120 bottoms yesterday. The daily charts are turning bullish as the hourlies support. Target price for the current move might be around 1.2210.
Wild Card
AUD/USD
The pair is very close to the bottom level of the bullish channel on the 4 hour chart.
This gives forex traders a great opportunity to enter the market for long positions and see whether a break beyond the 0.8220 occurs, and probably spur an additional up trend, probably to the 0.8280.
Market Trend
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
|---|---|---|---|---|---|---|
| Daily Trend |  |
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| Weekly Trend | |
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| Resistance | 1.3558 | 1.9890 | 121.64 | 1.2391 | 0.8269 | 0.6889 |
| 1.3508 | 1.9805 | 120.43 | 1.2332 | 0.8242 | 0.6857 | |
| 1.3460 | 1.9771 | 119.38 | 1.2231 | 0.8200 | 0.6834 | |
| Support | 1.3387 | 1.9684 | 118.36 | 1.2115 | 0.8151 | 0.6788 |
| 1.3285 | 1.9630 | 117.69 | 1.2067 | 0.8120 | 0.6711 | |
| 1.3210 | 1.9540 | 116.93 | 1.2000 | 0.8073 | 0.6646 |
Indicators
| Date | Time GMT | $€£¥ | Event | Period | Prev. | Forecast | Imp |
|---|---|---|---|---|---|---|---|
| 04/06/07 | EUR | Good Friday - Markets Closed |  | ||||
| 04/06/07 | US | Good Friday - Markets Closed | | ||||
| 04/06/07 | 12:30 | US | Change in Non-Farm Payrolls | MAR | 97K | 118 |  |
| 04/06/07 | 12:30 | US | Unemployment Rate | MAR | 4.5% | 4.6% | |