Thursday, 1 Oct 2009 USD Falls Slightly then Rebounds Ahead of Tomorrow's NFP Report

Thursday, 1 Oct 2009
USD Falls Slightly then Rebounds Ahead of Tomorrow's NFP Report
This week has been a bumpy ride for the US Dollar. After entering a bullish trend against a number of its currency rivals, the USD appeared set to step onto the world stage and announce the return of the safe-haven. However, a few positive reports in Europe and a level of optimism before the US Non-Farm Payrolls data tomorrow have helped many currencies pare some of the losses against the USD going into this morning's early trading hours. The USD, now appears, however, to be retaking the lead, as if optimism has taken a hit. Today's heavy news cycle and tomorrow's NFP report may be more important than many traders assume. If you're not in the market today and tomorrow, you should be.

Economic News
USD - Mixed Economic Data Weighs on the Dollar
The Dollar declined versus most of its major currency counterparts on Wednesday after mixed economic data showed that while the U.S economy is stabilizing, it is still very shaky. The Dollar index fell to 76.744, down from 77.085 in North America late Tuesday.

The greenback pared losses after a weaker than expected Chicago PMI report was released; however, data overseas served to reinforce growing optimism over the global economic outlook, reducing investor desire for the relative safety of the U.S. currency. The greenback extended a two-quarter slide against the EUR after a report showed China's manufacturing sector grew for a fourth consecutive month.

A heavy news day is expected today from the U.S with the Unemployment Claims due to be released at 12:30 GMT and the ISM Manufacturing PMI and Pending Home Sales due to be released at 14:00 GMT. Furthermore, Fed Chairman Ben Bernanke is due to testify at 13:00 GMT. This will likely result in a very volatile trading day for the Dollar, particularly ahead of the highly anticipated Non-Farm Employment Change report due tomorrow.
EUR - EUR Gains on ECB Comments
The EUR gained versus the Dollar Wednesday, shaking off disappointing U.S. economic data and sagging equities, after the ECB said it will lend banks 75.2 billion euros ($110 billion) for 12 months at the current benchmark interest rate of 1%. This was a lower number than was anticipated by economists, indicating banks' need for cash has eased for now.

The EUR traded at $1.4634, up from $1.4581 Tuesday, and at 131.44 Yen from 131.33 Yen. Comments from Federal Reserve officials pointed to a continuation of the loose monetary policy which encouraged risk appetite, despite concern over the sustainability of a U.S. economic turnaround. Loose economic policy reassures markets there is still an extended period of liquidity, which is positive for risky assets.

The Pound has continued to under-perform versus its major currency counterparts, unable to shake off the comments by Bank of England (BOE) governor Mervyn King that a weak Sterling will be beneficial for the U.K.'s recovery. In today's early trading the Pound is at $1.5942 versus the Dollar.

While most of the news today is expected to come from the U.S., traders are advised to follow the release of the British Manufacturing PMI at 8:30 GMT. A better than expected result might help reverse some of the Pound's recent losses.
JPY - Yen Declines on Risk Appetite Return
The Yen dropped against 14 of its 16 major counterparts yesterday as Japan's former top currency official said there are few reasons for the yen to rise further. Further pressure on the Yen versus the EUR came after the International Monetary Fund (IMF) cut its forecast for write downs on loans and investments, signaling that economic recovery is indeed on its way and reducing the appeal of the safe heaven currency.

The Bank of Japan's Tankan survey today showed an index of confidence among large manufacturers improved to minus 33 from minus 48 in June. While an improvement, a negative number means that pessimists still outnumber optimists. With no major news from Japan today, the Yen's direction will likely be set by the array of news coming from the U.S and Europe throughout the day.
Crude Oil - Oil Rallies 5.8% to Above $70 a Barrel
Despite a rise in inventories and sagging equities, Crude Oil futures rallied 5.8% Wednesday to above $70 a barrel. November crude futures rose $3.90 to $70.61 a barrel on the New York Mercantile Exchange, ending above the $70 level for the first time since Sept. 22.

Oil gained yesterday after the US Energy Department report showed an unexpected decline in supplies of gasoline. However, Crude imports also fell, down 2.7% to 9.5 million barrels a day which may suggest that the drop in gasoline supplies doesn't necessarily comes from increase in U.S demand.

While some improvement in demand is evident, in light of the poor economic data from the U.S and the continuous increase in Oil stockpiles there is no room for another strong rally as the U.S economic recovery proves to be sluggish. With a busy news day from the U.S., Oil levels are expected to experience quite a volatile trading day today; worse than expected results might erase Oil's gains from yesterday, however.
Technical News
EUR/USD
After this morning's sudden drop, the price of this pair now floats in the over-sold territory on the hourly RSI, while a bullish cross is developing on the hourly Slow Stochastic. Immediate short-term movement appears to be for an upward correction. Going long with tight stops might be a wise choice.
GBP/USD
The price on this pair recently exited the over-sold territory on the daily chart's RSI, suggesting some bullish movement may be expected. The fresh bullish cross on the hourly Slow Stochastic supports this notion. Going long may be today's preferable strategy.
USD/JPY
There appears to be a bearish cross forming on the both the hourly and 4-hour Slow Stochastic indicators for this pair, suggesting impending bearish movements. Going short might not be a bad idea in the short-term.
USD/CHF
This pair continues to trade within a bullish channel. Following its recent upward movement this morning, the pair is now set for a downward correction in order to stay within its channel. The fresh bearish cross on the hourly chart and the price floating in the over-bought territory on the RSI both support this notion. Going short in the near future may be a smart tactic, but this pair remains bullish. Longer-term positions may want to keep their long positions open and let this momentum ride.
The Wild Card
USD/MXN
The price of this pair appears to be floating in the over-bought territory on the hourly and daily RSI, suggesting strong downward pressure. With fresh bearish crosses in the hourly and daily Slow Stochastic, this notion only gains more strength. Going short on this pair may offer forex traders a great opportunity to capture an impending downward wave and ride it out for hefty profits.