USD Continues to be Sold

The US dollar was weaker again as high yielding currencies performed well. The euro was up sharply versus the dollar and global bourses were higher following yesterday’s strong trading session in the Dow.

Economic News

USD – Dollar Continues to Struggle

The slide in the value of the dollar continued today following weaker than expected ADP Non-Farm Employment change. The report showed job losses of -39K. Economists had expected the report to come in at a positive 23K. The payrolls company said the slide in private sector jobs confirms a pause in the economic recovery already evident in other data. Employment fell in all major sectors.

Dollar weakness was prevalent with sharp losses occurring versus the euro. The EUR/USD was trading higher at 1.3920, up from an opening day price of 1.3846. The USD/JPY was lower at 83.00, after opening the day at 83.17. The AUD/USD was higher at 0.9765 from 0.9713. The Dow Jones Industrials Average was up 0.21% today. This follows yesterday’s rally of 1.8%.

Traders will be focused on central bank meetings today with interest rate decisions to come from both Europe and Britain. On the data front, US weekly unemployment claims will be released today. If yesterday’s ADP report was any precursor, today’s data should prove to be dollar negative. Support and resistance for the EUR/USD are found at 1.3800 and 1.4020.

EUR – Euro Rally May Have Room to Run

The euro continues to outperform, rising past a key technical barrier. In trade yesterday the EUR/USD moved above 1.3890, the 61.8% Fibonacci retracement level from the December 2009 high. This marks a positive development for euro bulls. Many analysts had previously written off the euro, predicting its demise following the European fiscal crisis over the summer. Now the euro is the hottest currency against the dollar.

The euro’s comeback was not derailed following yesterday’s announcement by Fitch Ratings which reduced Ireland’s credit rating to the lowest by any of the major ratings agencies. Fitch also noted that there is a risk of a further cut in the rating. Ireland’s credit rating now stands at A+, down from AA- due to the large costs for bailing out the Irish banking system.

Traders will be eyeing interest rate decisions from both the European Central Bank (ECB) and the Bank of England (BOE). Both are expected to hold interest rates steady while the BOE should keep its asset purchase facility at its present level of 200Bn. The GBP/USD continues to move higher and its next resistance level rests at 1.5920, followed by a target at the August high of 1.6000.

JPY – Aussie Dollar Moves Towards Parity

The Aussie dollar continues its rapid appreciation and brings the currency closer to parity with the US dollar. In early morning hours, Australia released its Employment Change data that showed the Australian economy added 49.5K new jobs in the month of September.

The rise in employment numbers is the 7th straight gain in Aussie jobs data. The unemployment rate held steady at 5.1%. Much of the job growth has been in the mining industry which conducts a majority of its business with China.

In a surprise move earlier in the week the Australian central bank held rates steady at 4.50%. The market had previously priced in a rise of 0.25%. This may be enough evidence to convince the Australian central bank to continue to raise interest rates next month.

Some of the gains in the Aussie dollar can be attributed to the interest rate differential with the US. The US has interest rates at a low of 0.50% and is rumored to be enacting further loosening of monetary policy.

Traders may want to eye the 1.0000 level as the target for the AUD/USD pair.

Oil – Bullish Streak Continues

The price of oil rose to a 5-month high following the release of weekly crude oil inventory figures. The data report showed a large increase in overall stockpiles but a larger than expected drawdown in gasoline stocks. Also affecting the price of spot crude oil was a weakening dollar.

Traders will be eying employment data both today and tomorrow. Today’s weekly unemployment numbers may be negative given the poor ADP Non-Farm Jobs data that was released yesterday. Friday will bring the Labor Department’s Non-Farm Payrolls report. Expectations are for an increase of 3K. Traders should eye the high in May as a target of $87.

Technical News

The pair continues its move higher and crossed major milestone yesterday closing above 1.3890 the 61.8% Fibonacci retracement level from the December 2009 high. Traders should be eyeing the resistance levels of 1.4025, 1.4200 and the 2010 high of 1.4578 as the next targets.
Yesterday’s pullback in the price may present an opportunity to go long. The pair recently made a close above 1.5870 the 61.8% Fibonacci retracement level from the November 2009 high but has since moved back below the key price area. Traders may want to watch for a second move above this price level and target the August high of 1.6000.
Yesterday’s trading showed a bearish signal for the pair. A shaved top formed on the candlestick of yesterday’s daily chart. This indicates a strong selling sentiment that may hint that the bearish trend has room to run. Traders should be targeting the all-time low of 79.70.
The pair is showing signs of trading in a trending environment as the moving averages are aligned in a perfect order. This occurs in a downtrend when the 200 day simple moving average is above the 100, 50, 20, and 10 day simple moving averages in that order. Further evidence of a trending environment is given by the ADX indicator which is currently at 57. Anything above 25 is considered a trending environment. Anything above 40 is considered a strong trending environment. Traders should only be trading this pair short.

The Wild Card

A recent sharp appreciation in the price may have the ability to carry the price of spot crude oil past a significant resistance level into a breakout play. The resistance level lies in a range between the 76.4% Fibonacci level at 82.40 and the August high of $83. Should the price make a close above this level, CFD traders should place their next target for spot crude oil at the May high near $87.

Written by