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Dollar remains oddly unchanged as the NFP data surprise to the upside, where’s the rally?
MORNING BRIEF
Friday was good day for Dollar traders as the stronger than expected Non-Farm Payrolls report boosted their confidence over their pro-Dollar positions. The NFP report showed that the US economy added more than 200K jobs the previous month and the unemployment rate fell at 7%. It’s remarkable to note that the Fed had planned to start reducing its asset purchases program this year and end it completely when unemployment hit the 7% mark but here we are and the mark has already been hit. This will definitely bring forth the discussion on tapering in December and indeed we have a number of US policymakers delivering speeches this week so we want to keep an eye on what they have to say. The Euro and the Pound had a joy ride after the report was released, initially losing ground against the Dollar but eventually they bounced back up to close the day higher. So why didn’t we see a meltdown in these two currencies since the job data release surprised to the upside? Our view is that investors were careful and didn’t want to jump the gun as soon as the figures came out. The FOMC meeting isn’t far away and if the strong recovery in US economics indeed leads the Fed to cut back stimulus then the Dollar will definitely rally then. But there are reasons for this not to happen as well. One of them is the fact that this will be Bernanke’s last decision and many analysts are discussing the view that he might not want to take it upon himself to decide that and instead leave it to his successor to take the burden. Another reason is the fact that the US economy will start facing the budget ceiling issue once again as the new year begins. Especially the latter one might be reason enough to drive the Fed to stall their tapering decision for yet another month and that combined with the instability and uncertainty the budget talks will cause could drive the Dollar lower. So the lack of a Dollar rally on Friday signals that market participants prefer to better be safe than sorry and wait for Fed to take the initiative and drive the Dollar higher.
Several policymakers take the scene today and require our attention
released early this morning and the Euro-Zone’s Sentix Investor Confidence will follow it a couple of hours later. Finally the German Industrial Production will close the day regarding economic reports. However, the most important events of the day will be the speeches scheduled to be given by several policymakers. Apart from BoE Governor Carney’s speech in Ney York which will probably will have little to offer as new information, we’re extremely keen on listening to what his US colleagues have to say during their remarks. Fed’s Lacker, Bullard and Fisher are speaking at various venues in the US and interest is high to hear their views over the ‘early tapering or not’ issue, especially now that we have new data on the table. Remember that these people are the same people that will vote on the next FOMC meeting and even though they’re not Bernanke himself their views matter.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
7.00 |
EUR |
German Trade Balance |
Medium |
18.3B |
20.4B |
|
9.30 |
EUR |
EZ Sentix Investor Confidence |
Medium |
10 |
9.3 |
|
11.00 |
EUR |
German Industrial Production |
Medium |
3.1% |
1.0% |
|
17.15 |
GBP |
BoE Carney speaks in NY |
Medium |
||
|
17.50 |
USD |
Fed’s Lacker speaks at Charlotte |
Low |
||
|
18.05 |
USD |
Fed’s Bullard speaks in St. Louis |
Low |
||
|
19.15 |
USD |
Fed’s Fisher speaks in Chicago |
Low |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
The Euro was lifted by the better than expected job data in Friday but not before being pressured to the downside when the report was released. Unfortunately this initial reaction closed the remaining 50% of our long trade at the breakeven price of 1.3620 and prevented us from capturing additional gains. Anyway, that’s something that you should learn to live with when it comes to trading, sometimes luck just isn’t on your side. Moving forward, we expect the Euro to retrace lower today as investors come to terms with the apparently stronger than expected recovery in the US and we believe that the positive job data will weigh on Dollar’s flows and drive it higher. We’d like to stand aside for now and see how investors will digest the Friday’s report and whether they will start pilling on their pro-Dollar positions.
GBP/USD
The Pound wasn’t lifted that much on Friday after the NFP release and indeed it hovered around the 1.6350 level. Our short trade remains in play and we’re targeting lower towards the 1.6290 and 1.6190 marks but we’d like to move our stops a bit lower to better protect our trade that hasn’t accelerated during recent sessions. We’d like to place our stops just above the 1.6400 mark and please note that our targets have also been updated, being placed 10 pips above previous levels each.
FTSE 100
The FTSE 100 did pull back higher eventually as we have predicted on our recent reports and is now trading above the 6,550 level. This retracement was much needed for the index as it remained oversold for quite some time. We’d like to see whether this retracement ends today in order to jump into a short trade again or the NFP-related euphoria drives the UK index higher. What’s important is that the instrument has been placed on our watch-list again now that’s not at extreme levels anymore.
Gold
Gold remained within with broad range it has held for the past sessions but continued to demonstrate volatile behavior. The key levels we’re watching are the $1,253 and $1,211 marks and even though this range is big enough to attempt trades within it the recent volatile swings have not made this possible. We expect Gold to calm down now and reassume a more gentle movement, the approach of the range’s boundaries and possible exit from this sideways formation will show us what’s next. We’d like to see whether Gold will remain range bound so we can attempt to move on that direction or a breakout will occur driving the yellow metal higher or lower.
The above charts have been created using FXCM’s Trading Station platform.
STOCK MARKET FOCUS
[Restricted Content] Plc.
The Alpesh Patel Value/Growth filter has indicated [Restricted Content] Plc as our stock of the day.
Company Information: [Restricted Content]
Created using Sharescope Pro
[Restricted Content] Plc has been rated an 8 out 10 in our Value/Growth rating and gets an A Grade rating on our Bullish Momentum meter. The P/E ratio is relatively low suggesting that the stock might be underpriced, Turnover is up year on year suggesting good growth and Earnings are also up year on year boosting the growth potential. From a technical standpoint, the MACD indicator has been pointing upwards on the weekly chart above pointing towards higher levels. The recommended holding period for a stock of this type is 6-12 months.
Important Information
The filters and settings in the Special Edition of the Sharescope software use Alpesh Patel’s proprietary criteria to generate suggestions of securities worthy of further investigation. They DO NOT CONSTITUTE INVESTMENT ADVICE.
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