USD Direction to be Influenced by Employment Data

MORNING SLICES

FUNDYS

Price action has been quite subdued thus far with all currencies trading very close to their closing levels from Thursday. However, more broadly speaking, the general tone has been slightly more apprehensive, with a sense of trepidation as market participants look ahead to the much anticipated US NFP data. Part of the uncertainty has also stemmed from a noticeable pullback in commodity prices with gold retreating well off of its latest record highs. With the move in gold of late so heavily correlated to USD selling and favorable risk appetite, the latest retreat in the yellow metal has therefore naturally forced some profit taking in the other markets which has been seen benefiting the Greenback.

Relative Performance Versus USD on Friday (As of 9:30GMT) –

1)    STERLING    +0.44%
2)    KIWI              +0.36%
3)    CAD               +0.19%
4)    YEN                +0.11%       
5)    AUSSIE          +0.10%
6)    EURO             +0.05%   
7)    SWISSIE       +0.05%

Also seen weighing on sentiment has been some renewed fears over the Dubai credit crisis and some downbeat comments from New Zealand FinMin English on his outlook for the local economy. Elsewhere, talk of USD reserves from Japan and China have been getting some attention, with the ultimate take-away that there is no intent from either country to significantly reduce its USD holdings right now. This helped to offset some earlier rumors that Japan would be looking to sell some $100B in US Treasuries in an effort to ensure funds for its domestic program. ECB Liikanen has just come out on the wires saying that there has been no change to the ECB’s stance and that liquidity will be gradually withdrawn. On the data front, Swiss CPI came in higher than expected, while UK new car registrations improved from the previous print. UK Halifax house prices were sill not released at time of publication.

Looking ahead, it is all about unemployment data in North America with Canada change in employment (15k expected) and unemployment rate (8.6% expected) at 12:00GMT, followed by the more highly anticipated NFP (-120k expected) and US unemployment rate (10.2% expected) at 13:30GMT. Later, US factory orders (0.0% expected) are slated for release at 15:00GMT, along with Canada Ivey PMI (59.4 expected). On the official circuit, Fed Plosser speaks at 15:00GMT on lessons from the financial crisis, while Fed Bullard speaks to a panel in Philadelphia at 18:15GMT. US equity futures point to a marginally firmer open.

GRAPHIC REWIND
 

TECHS

EUR/USD The 50-Day SMA, which comes in by 1.4870 is the critical level to watch, with the medium-term moving average supporting a majority of the up-trend in 2009 on a close basis. As such, a close below this level would be viewed as a significant development and would suggest a material shift in the construct of the market. Given the latest volatility and whipsaw price action, we would recommend deferring to the weekly chart, which still shows the formation of a potential double top. The neckline comes in by 1.4625 and a break below would open a measured move decline towards the 1.4100's. As such, any rallies above 1.5100 should be used as an opportunity to establish short positions. Only a close back above 1.5145 would negate.

USD/JPY The market continues to extend declines to fresh multi-year lows since breaking below the recent 2008/2009 matched trend lows at 87.15. There is no real support now until 79.75 which represents the 1995 historic lows and a retest of this level can not be ruled out at this point with the overriding trend so intensely bearish. Look for a fresh lower top to now carve out ahead of 90.00 ahead of the next drop and resumption of the downtrend. 

GBP/USD Our outlook for the pair remains well intact with the market adhering to the multi-month consolidation after failing ahead of 1.7000 and rolling back over into the well defined range. Look for an eventual break below 1.6250 to open the door for some deeper setbacks over the coming weeks towards next key medium-term support by 1.5705. In the interim, below 1.6250 will expose initial previous resistance turned support by 1.6130. Rallies should now be well capped ahead of 1.6800, with only a clear break back above this psychological barrier to delay outlook. Thursday’s bearish outside day formation reaffirms outlook. 

USD/CHF Our core bullish bias is still intact, with the market unable to establish itself on a two-day close basis below parity. This puts our major double bottom scenario back in play, with a closer look at the weekly chart more clearly defining the reversal formation. The neckline for the pattern doesn't come in until 1.0340, and a break above this level will be required to confirm and accelerate gains back into the 1.0700's. Ultimately, only a close back under 0.9915 would negate outlook and give reason for pause.

FLOWS

US prime name and Swiss bank buying Aud/Usd. Dutch bank and UK clearer sales in Eur/Gbp. UK clearer on the bid in Gbp/Usd; Asian central bank offers. Leveraged accounts with offers in Eur/Usd on rallies. Local names keeping Usd/Cad propped on dips.

TRADE OF THE DAY

Eur/Jpy: We are currently short Eur/Jpy from Thursday and no new trades have presented thus far on Friday. As always, we will be on the look out for new opportunities. 

PORTFOLIO OVERVIEW

P&L Update and Overview: Many of you have been asking for a way to better track trading results and open positions. In response to these requests and in an effort to be fully transparent, a simulated portfolio was created in June to track and mirror all recommendations and trades. Below is a return on equity curve since inception on June 1, 2009, along with an open and closed position tracker. I am hopeful that this will make things easier for you all.

 

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel's reports in a more timely fashion, e-mail jskruger@fxcm.com and you will be added to the "distribution" list.

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