Dollar Mixed on Light Trading Ahead of U.S. Non-Farm Payrolls

The U.S. Dollar is trading mixed overnight ahead of this morning’s Non-Farm Payrolls Report. Demand for risky assets is up overnight putting pressure on lower yielding currencies. Traders are looking for a loss of about 50,000 jobs.

The U.S. Dollar is trading mixed overnight ahead of this morning’s Non-Farm Payrolls Report. Demand for risky assets is up overnight putting pressure on lower yielding currencies. Traders are looking for a loss of about 50,000 jobs. This guess is higher than last month’s actual loss of 20,000 jobs. The unemployment rate is expected to rise from 9.7% to 9.8%. A greater than expected jobs loss is likely to drive traders into the Dollar as this would indicate that the economy is weakening. Traders would most likely react by dumping higher risk assets in favor of lower yielding currencies.

The EUR USD is trading flat after the European Central Bank left interest rates unchanged on Thursday. There are still some concerns about Greece’s ability to shore up its budget deficit, but recently announced budget cuts and tax hikes have helped to increase the chance that aid will be coming soon from Germany and France. In addition, if a resolution can’t be reached then look for Greece to turn toward the International Monetary Fund for help.

In addition to keeping interest rates low, the ECB will continue to reduce stimulus measures. ECB President Trichet downplayed the move by saying that it “shouldn’t be interpreted as a change in our monetary policy”. The central bank also lowered its inflation forecast prompting Trichet to say that he sees an “uneven” recovery.

Bearish Euro traders expect the sovereign debt situation in the Euro Region to continue to pressure the currency. With many Euro nations likely to make budget cuts, government spending is expected to be reduced while interest rates remain low. This should keep the pressure on the Euro because other major players such as Canada and the U.S. are likely to begin raising rates.

The GBP USD is trading slightly better. This market has stabilized after a sharp break earlier in the week. Oversold conditions have been the driving force behind the recent strength. The fundamentals remain bearish with the U.K. facing a huge budget deficit, a weak economy and political uncertainty. A British Pound rally will likely stall near 1.5297 over the near-term.

The USD JPY is trading better after yesterday’s closing price reversal bottom was confirmed by firmer overnight action. Regaining a key 50% level at 89.30 will be the key to sustaining the developing rally. Upside momentum could take this market to 90.14 over the near-term.

Traders are selling the Japanese Yen on speculation that the Bank of Japan will increase credit easing measures. The government wants to see more credit pumped into the economy to ease the threat of deflation. The weaker Yen is should make it more attractive as a funding currency.

The USD CAD is trading slightly better after almost reversing to the upside on Thursday. Oversold conditions and the possibility of a verbal intervention by the Bank of Canada are helping to pressure the Canadian Dollar. The charts indicate there is room to the upside with 1.0471 the next likely target.

The USD CHF could break today if the Euro strengthens. Weakness developed earlier this week after a rally in the Euro diminished the chances of another intervention by the Swiss National Bank. The charts indicate the trend has turned lower, setting up a possible 50% correction to 1.0513 over the near-term. If today’s U.S. employment reports is worse than expected, then look for pressure on the Euro to spillover to the Swiss Franc.

Increased demand for higher risk assets is giving the AUD USD a boost overnight. Currently this market is testing a .618 level at .9042. Regaining this level will be a sign of strength and could lead to an acceleration to the upside over .9070. A failure to regain .9042 combined with a worse than expected U.S. employment report should send this market back down to at least .8953.

The NZD USD is up overnight, but the trend remains down. Traders are already speculating that the Reserve Bank of New Zealand is likely to keep interest rates lower for some time as its re-evaluates the weakening economy. Recently released weak retail and property report suggest that the economy is not showing a sustained recovery which RBNZ requires before considering a rate hike.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More