Euro Lower as Investors Debate U.S. Labor Outlook

Thin trading conditions ahead of the U.S. Non-Farm PayrollsReport on Friday and less than stellar economic news from the Euro Zone helpedto weaken the Euro on Thursday. The lack of fresh news from the Euro Zoneregarding debt issues is encouraging investors to return their focus to thebasic fundamentals.

Thin trading conditions ahead of the U.S. Non-Farm PayrollsReport on Friday and less than stellar economic news from the Euro Zone helpedto weaken the Euro on Thursday. The lack of fresh news from the Euro Zoneregarding debt issues is encouraging investors to return their focus to thebasic fundamentals.

Early Thursday the U.S. Dollar began to rally as investorstook a side regarding the outlook for the U.S. labor market ahead of Friday’sjobs report. Preliminary jobs data from the ADP Corp. and this week’s initialclaims data supported a rise in the number of jobs created. A Reuters pollpegged a consensus forecast of U.S.payrolls data at 513,000 jobs created in March. Some analysts are looking foran increase of 615,000 while President Obama chimed in by saying the reportwould show strong growth.

Speculators supported the Dollar because of expectationsthat the jobs report would show the labor market stabilizing. This means thatthe fundamentals are getting much stronger which will bring the Fed closer toraising interest rates. Investors like the odds that the Fed will raise beforethe European Central Bank and the Bank of England, therefore fueling the U.S.Dollar strength against the Euro and British Pound.

Besides expectations of a robust jobs report on Friday, theEuro showed further weakness following a reported unexpected drop in retailsales in April. There was an upward revision to the May Purchasing Manager’sIndex but that wasn’t enough to level off the market. Analysts now believe thatbased on the data, the next recovery is going to be triggered by renewedinvestment or net trade rather than by consumer spending.

Technically, the Euro is in a downtrend but trading insideof a short-term range of 1.2453 to 1.2110. Downside momentum is building whichcould drive this market through the low-end of the range, which could trigger asharp break.

Early this morning the USD JPY surged to the upside.Investors were still reacting to the resignation of the prime minister and tothe possibility of a slow down in the economy. Increased risk appetite also putpressure on demand for lower yielding assets. A mid-session turnaround in thestock market after early morning strength helping to weaken the USD JPYsomewhat, but not enough to turn it lower.

Besides the political uncertainty developing in Japan, traders now have to deal with the strongpossibility that the Fed will begin tightening should the U.S. jobs datameet or exceed expectations. This will increase the spread between U.S. andJapanese interest rates, putting further pressure on the Yen.

Technically, the Dollar/Yen finished higher but well off itshigh. The close over the .618 retracement level at 92.41 indicates continuingstrength with 93.64 the next potential upside target.

Stronger crude oil and rising equities failed to prevent arally in the USD CAD. This may be an indication that investors areconcentrating on the U.S.economy at this time rather than a desire for risk. The daily main trend isdown in the Dollar/CAD. This trend will remain lower unless 1.0573 is takenout.

Friday’s jobs data will dictate the direction in theDollar/CAD. A strong jobs number will likely be bullish for the U.S. Dollar,sending the USD CAD higher, but after the markets settle, appetite for risk mayreturn which will encourage demand for the currently higher yielding CanadianDollar. Look for increased volatility and the possibility of a two-sided trade.

The commodity-linked Australian Dollar and New ZealandDollar both closed higher on Thursday following a late session turnaround inthe U.S.stock market. Appetite for risk is likely to be the catalyst in these markets.Signs of a stronger U.S.economy may weaken the Aussie and Kiwi early but conditions could shift laterin the session if stock traders decide bullish employment news will helpcorporate profits. The NZD USD changed the main trend to up on the daily chartwhen it broke the last swing top at .6862. Expectations are for this market totest a 50% price at .6942 over the near-term.

The biggest concern that traders face tomorrow is thepossibility that analysts overshot the jobs number. With the bar set extremelyhigh at 513,000 new jobs created, it is possible that the actual data will fallshort of expectations. If this occurs, the U.S. Dollar is likely to weaken,thereby erasing all of Thursday’s gains.

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

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