Investor Confidence From NFP Report Slowly Fades During Early Week Trading
Tue, Sep 7, 10:41 AM ET, by ForexTraders.com
On Friday, the NFP report beat market expectations quite nicely. The expected figure was -101k, but the actual figure came out at -54k, so less jobs were lost than expected. This good news caused investor sentiment to improve modestly as risk currencies rallied throughout the day on Friday. This risk appetite was not able to hold its ground during Monday trading as the euro slipped off its HI's Monday morning and moved down throughout Monday trading.
This week has several major risk events scheduled, which should continue to offer the market clear guidance to economic progress around the world. Currently, the currency market will most likely continue to move in the trading ranges that have been established over the past several weeks unless economic drivers come into the market that tip the momentum in direction of buyers or sellers. EUROThe EUR/USD has been moving in a tight range between 1.2930 and 1.2600. Price has been moving in this range from August 11th until today, so there is plenty of attention on these levels. During early the London session on Monday, buyers failed to push price above the 1.2930 level yet again, and sellers were able to take strong control of the market at that level and push price all the way down to the 1.2780 level by the mid-Asian session early Tuesday morning.
You can see on the chart above that the reaction off the 1.2930 level has never been this strong. The vertical selling off the 930 level is a sign there is not much buying interest at those price levels. The most likely scenario is that we will retest the lows of the range at 1.2600. PoundThe story with the pound is very similar to the euro. It has been trading in a tight descending triangle on the H4 chart over the last month since August 11th.
The GBP/USD has some very interesting price action developing. It has formed consecutive lower HI's throughout the last month and the pound is now trading between 1.5485 and 1.5325. This 160 pip range will most likely be broken to the upside or downside this week, but the risk at the moment is definitely to the downside. The successive lower HI's on the H4 chart above are definitely showing weakness and a lack of buying strength. If the pound can break 1.5325 to the downside, it should find support down at 1.5125, which is the 50% fib of the overall move on the pound Daily chart and a strong support/resistance level. Key News for the Week
RBA Keeps Rates On Hold
The Reserve Bank of Australia announced that rates will be kept unchanged in September due to global uncertainty in the current economic environment. The RBA said that domestic economic conditions were currently quite favorable but remained at risk due to the deteriorating conditions throughout the developed world. This decision from the RBA will most likely weigh on the Aussie this week, and the current HI's formed in AUD/USD will most likely hold as resistance. Downside risk is seen for most Aussie pairs unless a large bout of risk appetite comes into the market this week.
USA
This week is not especially heavy with U.S. economic data. The only key reports will be Thursday's Trade Balance and Unemployment Claims. This small amount of economic data out of the U.S. means the fate of the dollar this week could be in the hands of developments in the U.K. and EuroZone.
U.K.
Interest rate announcement is due for release Thursday morning. The outlook from the Bank of England has been quite dovish over the last month as Mervyn King has continually painted quite a bleak picture concerning the economic recovery in the U.K. Prime Minister Cameron's austerity measures are gaining public approval as they bring the U.K. slowly back into long-term economic health, but they are also expected to weigh heavily on U.K. economic growth throughout the 2nd half of 2010.
Thus, the statement from the BOE will most likely continue this dovish tone and should not do much to help this pound rally.
EuroZone
The EuroZone has no key data due for release this week. Investor focus surrounding the EuroZone will continue to be centered around the ongoing sovereign default fears and economic developments in Greece, Portugal, Spain, and Ireland. If yield spreads continue to widen this week, it could mean trouble for the euro as investor concern continues to mount concerning a true recovery in these struggling EuroZone countries.
This situation is literally a ticking time bomb. Sudden developments in any of these countries that shock investors could cause an immediate and sharp sell-off in the euro.
China
Investors around the world are trying to gauge how serious the current economic slowdown is. Are developed nations simply headed for a period of slow economic growth, or is a double-dip recession looming ahead? China is actually a critical part of the answer to this question. The Chinese economy has been showing signs of economic slow-down in the last month, which was completely expected by market participants. The Chinese government began removing economic stimulus in the spring in order to curb inflation and bring GDP back to sustainable levels. Thus, a slow-down was expected, but news coming out of China this week will help investors determine who serious the slow-down is.
If key data out of China surprises the market to the downside this week, look for risk aversion to continue to grip the fx market and equity markets around the globe. China was a key reason that developed nations were able to survive the 2008 Recession. Continued demand out of China for goods and services in the West is absolutely essential for developed nations, and if the economy in China slows significantly, it will definitely weigh on developed nations who are already struggling with a severe economic slow-down.
SDI Glossary: "price" Definition
SDI Glossary: "GDP" Definition
SDI Glossary: "Recession" Definition
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