ISM Non-Manufacturing Composite on Tap

Last Friday, the greenback continued gaining all across the board against the major currencies. The EUR/USD pair fell for the first time in six weeks below the psychological level of 1.5400, closing the trading session at the rate of 1.5380. The USD continued its bullish momentum mainly as a result of favorable economic data release during the day. By midday, the Employment data for April was released and gave traders many good reasons to buy dollars. With the figures released, the USD sharply gained 70pts against the EUR and 82pts against the JPY. As well the figures release assisted the greenback’s recovery against the GBP, closing the Cable below the rate of 1.97 by the end of the weeks trading session.

Surprisingly, The Non-farm Employment Change showed a strong rising trend in the number of employed people during April. The report showed that fewer than 20K jobs were cut in March Compared to February reading of -81K. Combining Non-farm Employment Change with the non-aggressive interest rate last week, many traders see this as an additional sign of a US economic recovery. Moreover, in April the Unemployment Rate was reduced by 0.1% to 5%.

Today, the most important data to be released from the US will be the ISM Non-Manufacturing Composite. This report will reveal to traders more information, about the activity level during April in the US, including new orders and employment. The report is forecasted to fall at a rate of 0.5% to 49.1. Although we expect this fall to weaken the USD, the direction the USD may take may be psychological and continue last week’s bullish movement. Traders should closely follow, on Wednesday, the Non-farm Productivity report which will have more information on the US non-farm sector.

In addition, Gold prices fell last week by 6% on the back of the strong greenback. Analysis forecast Gold’s bearish momentum to be unstoppable in the short term, because the strengthening of the US economy. Meanwhile, Crude Oil prices retreated last week from its all time high above the rate of 119 USD for one single barrel, to Thursday’s 16 days low of below the $110 rate. Oil’s falling trend came mainly as a result of the strong dollar combined with announcements-free week from the OPEC countries.

The EUR fell on Friday to a month and a half low against the USD. The Euro’s fall came as positive indicators from the US flooded the news calendar. Traders were perplexed as rising speculations of high inflation in the Euro-zone, didn’t stop the Euro’s bearishness.

Friday’s German retail sales came well below expectation of 0.6% ultimately at a rate of -0.1%. In addition, Euro-zone Manufacturing PMI fell to 50.7 from March’s reading of 50.8. Even though the European figures announced last week were not positive, the main reason for the EUR bearish trend of late was a strong dollar and the forecasted recovery for the US economy.

Later on today ECB president Trichet is expected to speak. In his speech we expect president Trichet to supply additional indicators on the economic and interest rate policy direction in the short term. As well; it is extremely important for the EUR investors to follow Thursday’s ECB conference. The questions and answers session is expected to give traders clear and strong figures for the short and the long term.

Last week the JPY underwent a volatile trading session with most of its currency pairs. The JPY lost some strength against the USD, yet it kept a steady rate against its other crosses. A batch of significant data was delivered last week, including an interest rate announcement which kept the Japanese economy with the lowest rate throughout the industrial world, and Retail Sales figures that reflected another month of increases. The Japanese have now posted 8 straight months of Retail Sales increases showing $116.7 billion worth of sales since the beginning of the calendar year. Several of Japan’s economic chiefs gave speeches, stating that as a result of the ongoing uncertainty regarding economic activity and prices, the Bank of Japan (BoJ) will not set the direction of monetary policy in advance.

As for this week, most of the Yen’s volatility will derive as a result of overseas economic events. Traders should pay close attention to U.S Nonfarm Productivity results, scheduled for Wednesday, and to the U.S Trade Balance on Friday.

Today is Children’s Day in Japan and all banks are closed. Forex Traders should expect low liquidity throughout the day.

Technical News

The pair has been showing a strong and consistent downtrend since April 23rd, and the momentum appears that it will continue uninterrupted. The small local correction is slowly losing its energy, and the daily chart is showing that the renewal of the bearish trend is quite imminent. Selling on highs might be a good strategy today.
There is a bearish channel forming on the daily chart as the cable now floats in the middle of it. The local bullish momentum is still healthy within the channel and an upcoming test of the upper barrier is imminent. A breach through the 1.9820 will validate the bullish breach and probably take the cable higher.
The sharp bullish channel on the daily chart continues with no signs of a stop. The Slow Stochastic is showing a triple top formation with a positive slope, which indicates the possible continuation of the trend. Going long appears to be the right move today.
The momentum created by the bullish breach through the channel in the daily chart appears to be continuing. The Slow Stochastic is showing no crosses and the RSI is floating around 60. The next target price appears to be 1.0620, which makes it preferable for Forex traders to go long with tight stops.

The Wild Card

There is a very accurate bearish channel forming on the 4 hour chart as gold now tests the upper level of it. The cross on the daily Slow Stochastic indicates the bullish momentum within the channel is over, and that the bearish trend will probably resume. This is a great opportunity for forex traders to go short on a very good entry price.

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