FX Market Braces Ahead of US NFPs

MORNING SLICES

FUNDYS

All is very quiet, with markets seemingly content on consolidating in tight ranges ahead of the much anticipated US NFP due out later. There have been very few developments on Friday thus far, with the only real takeaway coming out of Japan, after many government officials, including PM Hatoyama, have said that the government should not comment on FX rates. This comes in response to yesterday’s surprising statement by new FinMin Kan who called for additional Yen weakness. Nevertheless, Usd/Jpy has failed to back off and remains well bid above 93.00, with many traders now looking for some more significant upside over the coming weeks. Japan’s economic indicators continue to show improvement and point to signs that we are indeed in the process of recovery. Fed Bullard has been on the wires in European trade with an upbeat outlook on the US economy. The central banker expects unemployment to drift down in 2010.

Relative Performance Versus USD on Thursday (As of 9:10GMT) –

1)    STERLING    +0.55%
2)    YEN                +0.34%
3)    EURO            +0.13%
4)    CAD               +0.11%       
5)    SWISSIE       +0.02%
6)    KIWI               -0.05%   
7)    AUSSIE          -0.07%

On the data front, Swiss unemployment was as expected, while the German surplus surged. Swedish industrial orders were impressive, but Norwegian retails sales were a huge disappointment. UK PPI and Eurozone GDP were yet to be released at time of print.

Looking ahead, key employment data is slated for release both out of Canada and the US. Canadian change in employment (20.0k expected) is first at 12:00GMT, along with the unemployment rate (8.5% expected).  US NFPs (0k expected) and unemployment (10.1% expected) then follow at 13:30GMT, with wholesale inventories (-0.2% expected) at 15:00GMT and consumer credit (-$5.0B expected) capping things off at 20:00GMT. On the official circuit, Fed Lacker is slated speak on the economic outlook at 18:35GMT in Maryland. US equity futures are flat, while commodities are doing their own thing and tracking lower on the day.

 
TECHS
 

EUR/USD The market has been locked in a choppy consolidation since basing out by 1.4215 in late December, and it is unclear at this point which way we will go from here. The 200-Day SMA is yet to be challenged, and dips throughout the consolidation have been very well supported just ahead of the longer-term SMA. A break below this SMA will now be needed to open the door for a fresh downside extension and confirmation of a more significant structural shift. Key short-term resistance now comes in by the consolidation highs at 1.4485 and a break back above this level will be required to relieve downside pressures. Ultimately, we continue to retain a bearish outlook and will look for opportunities to sell. 

USD/JPY Despite the latest bounce, the pair still remains confined to a very strong downtrend off the April 2009 highs and any rallies should be limited. However, while a medium-term lower top is now being sought out below 97.80, the latest break above 93.20 warns that the market could still see additional upside before attempting to roll back over. Falling trend-line resistance off of the April 2009 highs comes in at current levels and as such it will be interesting to see if the pair can manage a close above this line. A close above 93.50 could open a direct retest of psychological barriers at 95.00, while failure to do so may suggest that the medium-term lower top is ready to start to form.

GBP/USD The market has now easily cleared support by the 200-Day SMA and psychological barriers by 1.6000 to open the next downside extension towards key medium-term support at 1.5700. Daily studies are however in the process of unwinding from oversold levels, and we would recommend looking to sell into rallies rather than selling on breaks. Look for any rallies to now be well capped ahead of 1.6300, where a lower top is sought out ahead of the retest on 1.5700.

USD/CHF The break back above 1.0340 in recent weeks has been a critical development which now greatly increases the likelihood of a material shift in the structure in favor of additional medium-term USD gains. The market has also now broken back above the 100-Day SMA for the first time since May 2009, while the daily RSI has recently reached its highest levels in over a year, which further strengthens our core bullish outlook. From here, look for any setbacks to now be very well supported ahead of 1.0200, with the market now seen eyeing a test of next resistance by 1.0700 over the coming days. Look for a break back above 1.0425 to get things going.

FLOWS

Macro funds selling Eur/Usd. UK clearer buying Gbp/Usd. Short-term specs booking profit on Usd/Jpy longs; good interest on dips below 93.00.

TRADE OF THE DAY

No Trade: The market has been very quiet and the lack of movement prevents us from considering any fresh set-ups. We are already exposed through the Eur/Aud trade triggered on Wednesday,

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 has been created to track our results on a daily basis. We are pleased to announce that our model generated returns of 50% in 2009. The return on equity curve seen below has now been reset for 2010.


 

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.

If you wish to discus this topic or any other feel free to visit our Forum page