Market Volatility Expected to Continue Today as Non-Farm Payrolls Awaits

Following an intense trading session, on which gold dropped below $1,060 an ounce, crude oil declined to $72.40 a barrel and the EUR/USD fell to the 1.3670 level, another exciting trading day is expected before the weekend begins. The U.S Non-Farm Payrolls is scheduled today at 13:30 GMT, and as always promises to create extraordinary volatility in the market.

Economic News

USD – Dollar Reaches 9-Month High against the Euro

The Dollar rallied against the Euro yesterday, gaining over 200 pips. The EUR/USD pair reached a 9-month low as a result, dropping to the 1.3670 level. The Dollar also gained about 200 pips vs. the Pound today, marking an extremely bullish session.

The Dollar’s bullish trend continued yesterday. It appears that the risk-aversion is currently dominating the market, as the Dollar seems to surge regardless of the data published from the U.S. economy. Over the last two weeks the Dollar rose due to an improving housing sector, a halt in unemployment growth and rising inflation. However today, the Dollar rallied following a batch of disappointing data, including worse than expected employment figures. The weekly Unemployment Claims rose by 8,000 during the past week to 480,000 people who filed for unemployment insurance for the first time during the past week. Currently the Dollar’s bullish momentum seems be quite solid, and somewhat immune to negative data.

Nevertheless, today’s trading session can put a stop to the bullish trend or significantly extend it. Today is the first Friday of the month, and as such the U.S. Non-Farm Employment Change report is expected. Analysts forecast that today’s publication will provide the first positive figures since January of 2008. This will be yet another strong indication that the U.S. economy is recovering at a faster pace than expected. This has potential to boost the Dollar once again today against the major currencies, especially the Euro and the Pound. However, an unexpected negative end result could initiate a reversal in the market, and forex traders should be prepared for harsh volatility today.

EUR – Euro Tumbles as Interest Rates Remain at 1.00%

During yesterday’s trading session, the Euro dropped against all the major currencies. The Euro is currently traded at a 9-month low against the Dollar, as the EUR/USD pair dropped over 200 pips, reaching the 1.3670 level.

The Euro’s decline was initiated today when the European Central Bank (ECB) announced that the Minimum Bid Rates, which are the European Interest Rates for February, will be left at record low of 1.00%. The Euro dropped sharply as a result, expressing investors’ desire to see an interest rates hike in the Euro-Zone. In addition, following Greece’s deficit concerns, the ECB President Jean-Claude Trichet said today the many Euro-Zone countries will have large, sharply fiscal imbalances. There are currently concrete worries that the Euro-Zone’s leading economies will be damaged as a result of the difficulties of the smaller economies, turning investors to look for safer currencies such as the Dollar and the Yen.

Looking ahead to today, the most interesting data from the Euro-Zone looks to be the German Industrial Production figures for December. Analysts forecast that the Industrial Production, which measures the value of output produced by manufacturers, rose by 0.6% on December. If the actual result will be similar, it is likely to support the Euro.

JPY – EUR/JPY Drops to an 11-Month Low

The Yen soared against all the major currencies during yesterday’s trading session. The Yen gained over 200 pips against the Dollar today and over 400 pips against the Euro, sending the EUR/JPY pair to an 11-month low.

The Yen’s remarkable bullish session came predominantly as a result of fears regarding the Euro-Zone’s worsening fiscal problems. The European Central Bank announced today that several countries might have fiscal imbalances this year, turning investors to search for safer assets. In addition, the Yen also strengthened against the Dollar, following disappointing U.S. employment data which were published yesterday. It now seems that as long as the current risk aversion inclination will continue to dominate the market, the Yen will continue to strengthen.

As for today, there is no significant news publications expected from the Japanese economy. Therefore traders are advised to follow the main data from the U.S. economy. Special attention should be given to the Non-Farm payrolls report that is likely to have the strongest impact on the market today.

OIL – Crude Oil Drops to $72.40 a Barrel

Crude oil dropped close to 5% of its value today. Crude oil dropped from $77 a barrel to $72.40. This has marked the biggest single-day drop in more than six months.

Crude oil dropped yesterday, as debts concerns in Europe along with the unexpected drop of U.S. weekly employment claims may hurt the long-term demand for energy. Crude oil prices rose during most of the week on optimism regarding the global economic recovery. However, recent notifications that several European countries suffer from excessive deficits have ended the optimism. In addition, the Dollar’s bullish trend also weakened oil. Crude oil is valued in Dollars, and when the Dollar sees a sharp rise, crude oil tends to drop as a result.

Looking ahead to today, traders are advised to follow closely the major publications from the U.S. economy as they are likely to impact oil the most. Today’s most significant data will be the U.S. Non-Farm Employment Change, and this publication is likely to have an immediate affect on crude oil.

Technical News

The weekly chart shows a strong bearish trend with no signs of slowing. Both the 7-day and 14-day Relative Strength indicator are trading sharply below the 30 level and have not yet made a move to rise. The price has broken its 50% retracement level from the previous bullish trend at a price of 1.3746 and now could fall to the 68% retracement level to 1.3296.
The daily chart displays a downward sloping MACD histogram, indicating the momentum of the pair is moving lower. The sharp downward trend has arrived at the significant support level of 1.5715. The previous bearish move ended at this price level. If the pair is able to breach this support line, we could see the price move lower to the next significant support level of 1.5350.
The weekly chart shows a significant bearish trend that may have room to extend. The MACD shows a potential bearish cross forming with a downward sloping histogram, hinting at a further lower price move. The price move began at the upper border on the Bollinger Band and has since crossed the 20-day moving average line. This shows the potential for further price declines, perhaps to the lower Bollinger Band at a level of 87.30.
The strong bullish trend shown on the 4-hour chart may now be overbought and those who were long may want to trip their exposure. The 4-hour shows a bearish cross has formed on the Slow Stochastic Oscillator, indicating the potential for price move lower. The Momentum Oscillator has reached the upper boundary and has begun to turn lower, supporting the potential lower price move. The Relative Strength Index has moved into the overbought region but has yet to break the rising trend line or the upper boundary. Traders may want to wait for the break of the 70 line to close their long positions or go short on the pair.

The Wild Card

Silver has experienced a significant downward price move that has now broken a long term trend line that began in November 2008. The price breach also passed the significant support level of 16.22. Forex and commodity traders who are short on silver may want to set their next price target at the new support level of 16.40.

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