Forex Tips & Daily Analysis

Economical News

USD

Yesterday a government report showed that the number of U.S. workers filing new claims for jobless aid dropped by 21,000 last week, while the number of Americans who stay on the benefit rolls increased to the highest level in more than two years.

The U.S. Labor Department reported that the number of Americans filing for first-time claims for unemployment benefits suggested that the labor market continued to weaken since the end of 2007. Initial jobless claims decreased to 336,000 last week from a two-year high of 357,000 the week before.

Job growth slowed in December remarkably during the last four months and U.S Companies only added 40,000 jobs. The ADP report, which was published yesterday, indicated a reduction of 31,000 jobs in goods- producing industries including manufacturing and construction companies. Service providers added 71,000 workers and construction employment dropped by 17,000.

This fact suggests that nonfarm payrolls grew by about 65,000, close to the 58,000 now expected.

Borrowing costs have fallen since the central banks declared a shared effort to relieve a logjam in interbank lending power on the basis of concerns due to losses at financial institutions which could possibly slow economic growth. Applications for loans to buy homes fell to the lowest level in more than four years, while demand for refinancing loans dropped to the lowest since December 2006.

On the basis of this data, many Forex traders believe that today's Labor Department report will also show employment slow down, and as we witness, the employment figures are vital, they represent mainly the housing sector in combination with the credit markets, from which the U.S. economy still suffers.

The sentiment surrounding the greenback remains negative so it should continue on its bearish path today, however it could consolidate after its recent sharp declines. All eyes will be on the NFP report today and we could see some sharp movement on the back of any surprise.

EUR

The EUR continued its bullish rampage yesterday and the recent sharp strengthening of the EUR will once again raise concerns over the state of European exports. The German economy is one of the key players in the EU and it is heavily reliant on exports. However the sharp appreciation of the EUR has begun to dampen the German economy as was seen late last year.

Germany's unemployment rate decreased to the lowest in almost 15 years in December. Declining unemployment in Germany revealed warning signs coming from Europe's major economy as it struggles to cope with the EUR's 12% gain against the U.S. dollar over the past year. German business confidence chopped down to the lowest in almost two years in December. Retail sales fell for a third month. Nevertheless this negative news did not really shake up the resilient EUR and we are seeing the 15 nation currency rally sharply in the New Year.

Germany's unemployment rate was left unchanged at 8.1% in December, as the number of German citizens without work has reached to just over 3.4 million.

Wednesday's report pushed the EUR down to $1.4373 in European trading, from $1.4409 in late trading Tuesday night in New York.

Businesses in Germany are concerned with the escalating rate of borrowing. Banks are suspicious of lending to each other, due to uncertainties of loans backed by U.S. subprime mortgages, and this fact has resulted in a dramatic slowdown in lending to corporations and individuals.

JPY

The JPY continued its bullish surge yesterday, driven mainly by the sharp global carry trade unwind. It reached a five-week high against the EUR and US dollar and it has been one of the biggest gainers among major currencies in the last few days. Based on Weak U.S. data, as well as reports on Wednesday of reduction in the manufacturing sector during the month of December, many investors around the world began shifting chancy assets due to uncertainties concerning the impact of the sluggish U.S. economy over the global development. This caused a sharp carry trade unwind which has not relented since then.

Carry trades involve selling low-yielding currencies like the yen to invest in higher-yielding currencies. Therefore declines in overseas equities markets since last week have driven a massive carry trade unwind and hence given a boost up to the JPY, which hit a 17-month high against the sterling at 213.54 yen on Thursday. In addition, yesterday the JPY strengthened to as high as 108.25 per US dollar, a point which has not been seen since November 27.

The Nikkei was down 3.5 percent at 14,771.85, it's lowest since Nov. 22, and the broader TOPIX index was down 3.2 percent. The strong correlation between falling equities and a strengthening JPY indicates that the short term direction of the JPY will heavily depend on the performance of global stocks combined with the level of risk investors are willing to take.

Technical Analysis

EUR/USD

The positive momentum is growing stronger, and the 4 Hour chart is showing some room to run on the bullish side. However the daily chart indicates that we are in overbought territory with RSI and slow stochastic floating around the 80 level. This pair should correct slightly before making another surge upwards. Its next bullish target price will be 1.4800.

GBP/USD

The cable is continuing to trade in a wide range with a strong signal on the bearish side. The 4 Hour chart is showing a bearish cross and the dailies are indicating a solid downtrend in the making. If the cable breaches the strong 1.9700 support level, we should see it make another sharp freefall.

USD/JPY

There is strong negative momentum surrounding this pair and it is now floating around the 122.50 level. The daily chart is bearish and is supported by a bearish 4 Hour study as well. It looks as if the next target price for this pair will be to breach the all important 109.00 support level.

USD/CHF

After several attempts to break through the very important support level of 1.1100, the pair just managed to peak through. However at the moment the pair seems to be consolidating around the 1.1120. The ongoing momentum is down, as traders should pay close attention to the 1.1100 level, as if it is breached than a much deeper move would be imminent.

Wild Card

Gold

The bullish momentum is accumulating power, and there is a steady tight upward channel appearing on the 4 H chart. This commodity may correct slightly before continuing its steady progression. So forex traders could maximize their profits by waiting for a dip and then placing a buy position for a solid longer term trade.

Market Trend

	EUR/USD	GBP/USD	USD/JPY	USD/CHF	AUD/USD	EUR/GBP
Daily Trend
Weekly Trend
Resistance	1.4824	1.9754	110.00	1.1188	0.8900	0.7549
	1.4790	1.9735	109.68	1.1160	0.8870	0.7527
	1.4760	1.9700	109.40	1.1130	0.8845	0.7500
Support	1.4700	1.9648	109.00	1.1073	0.8800	0.7448
	1.4673	1.9620	108.76	1.1048	0.8773	0.7415
	1.4640	1.9600	108.59	1.1015	0.8753	0.7370

Indicators

Date	Time GMT	$€£¥	Event	Period	Prev.	Forecast	Imp
2008-01-04	06:45	CHF	CPI	m/m	0.5%	0.1%
		CPI The Consumer Price Index (CPI) measures the rate of inflation (i.e., the rate of price changes) experienced by consumers when purchasing goods and services. A rising trend has a positive effect on the nation's currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates to bring prices down. Higher interest rates attract foreign investment, thus increasing demand for the nation's currency. CPI is one of the most closely watched indicators and will usually have a high impact upon release.
2008-01-04	09:30	GBP	Services PMI		51.9	51.6
		Services PMI The Services Purchasing Manager's Index (PMI) measures the activity level of purchasing managers in the services sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation's currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.
2008-01-04	09:30	GBP	Mortgage Approvals		88K	84K
2008-01-04	10:00	EUR	CPI	y/y	3.1%	3.1%
		CPI The Consumer Price Index (CPI) measures the rate of inflation (i.e., the rate of price changes) experienced by consumers when purchasing goods and services. A rising trend has a positive effect on the nation's currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates to bring prices down. Higher interest rates attract foreign investment, thus increasing demand for the nation's currency. CPI is one of the most closely watched indicators and will usually have a high impact upon release.
2008-01-04	13:30	USD	Nonfarm Employment Change		94K	70K
		Nonfarm Employment Change Measures the number of new jobs created in the previous month, excluding the farming industry. A rising trend has a positive effect on the nation's currency. The number of new jobs being created is one of the most important indicators of the economy's health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.
2008-01-04	13:30	USD	Unemployment Rate		4.7%	4.8%
		Unemployment Rate Measures the percentage of the total work force that is unemployed and actively seeking employment. A falling trend has a positive effect on the nation's currency. Working people tend to spend more, and consumer spending is a major driver of the economy. However, unemployment usually draws little attention because traders view it as a lagging indicator.
2008-01-04	13:30	USD	Average Hourly Earnings	m/m	0.5%	0.3%
		Average Hourly Earnings Measures the rate of inflation found in the wages paid to nonfarm jobholders. A rising trend has a positive effect on the nation's currency. When businesses pay more for labor, they are likely to pass the higher costs to the consumer, so traders view wage inflation as a leading indicator of consumer inflation.
2008-01-04	15:00	USD	ISM Non-Manufacturing Index		54.1	53.5
		ISM Non-Manufacturing Index The Institute of Supply Management (ISM) Non-Manufacturing Index measures the activity level of purchasing managers in the services sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation's currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.
2008-01-04	15:00	CAD	Ivey PMI		58.7	51.5
		Ivey PMI The Ivey Purchasing Manager's Index (PMI) measures the activity level of purchasing managers from all sectors of the economy, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation's currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.