Staying Skeptical of Todays Non-Farm Payrolls Report

Today’s non-farm payrolls report is expected to show improvement in US employment data as many economists have upped their forecasts following the strong ADP report. However, traders may want to remain skeptical as US unemployment continues to remain at uncomfortably high levels.

Forex Market Trends

Daily Trend down down down up no down
Weekly Trend down down down up down down
Resistance 1.3860 1.5620 79.50 0.9775 1.0750 0.8830
1.3610 1.5890 78.80 0.9460 1.0450 0.8760
1.3530 1.5780 78.50 0.9330 1.0340 0.8660
Support 1.3420 1.5640 76.55 0.9065 1.0090 0.8515
1.3145 1.5420 75.56 0.8920 0.9660 0.8485
1.2870 1.5270 0.8760 0.9385 0.8355

Economic News

USD – Staying Skeptical of Todays Non-Farm Payrolls Report

Over the past few weeks there is a noticeable trend of better US economic data. Just this week we’ve had strong consumer confidence numbers, a large increase in pending home sales, as well as yesterday’s ISM manufacturing PMI survey. While these factors all point to increased momentum for US growth the employment situation remains tepid at best. The unemployment rate remains stubbornly high at 9.0% and yesterday’s weekly unemployment claims rose to 402K, the highest level in more than a month.

This week’s ADP non-farm numbers may also give a false sense of security leading up to today’s NFP report from the Labor department. Despite the solid unemployment numbers on Wednesday from the private payrolls provider, the ADP report does not have a particularly good history of predicting the government’s official data. Therefore, we remain skeptical of any solid recovery in the US employment picture which would likely be a negative for market sentiment and a positive for the USD.

EUR/USD support is found at 1.3270 at the upper line of the bearish wedge followed by the October low of 1.3145. Resistance is 1.3610 from the November 18th high.

EUR – Draghi Suggests Greater EU Integration

In a speech yesterday ECB President Mario Draghi suggested closer fiscal integration is necessary for the euro zone, “We might be asked whether a new fiscal compact would be enough to stabilize markets and how a credible longer-term vision can be helpful in the short-term. Our answer is that it is definitely the most important element to start restoring credibility… Other elements might follow, but the sequencing matters.” The statement by Draghi is significant as it suggests the ECB may commit itself to aiding distressed euro zone countries once the proper fiscal checks and balances are implemented. The ECB has always maintained the position that the European debt crisis is fiscal crisis and not a monetary crisis. Should the ECB step in with its full firepower to support the likes of Greece, Italy, Spain, and Portugal, this will be a catalyst for the EUR. Today German PM Angela Merkel will deliver a speech to the Germany parliament outlining potential steps to further integrate Europe with budget coordination. Could this be the first step towards a more integrated Europe and a stronger EUR?

CHF – Negative Interest Rate Rumor Fuels CHF Weakness

The EUR/CHF was on a rollercoaster ride yesterday as the CHF weakened versus both the USD and the EUR. The trigger for the CHF moves were rumors of the Swiss government debating a negative interest rate to help weaken the currency. Recent economic data in Switzerland has been on the weak side with GDP coming in at only 0.2% in Q3 and the KOF economic barometer falling to 0.35 from 0.75. Market expectations are for additional moves by the SNB to weaken the franc as the threat of deflation continues to weigh on the Swiss economy. This could take the form of raising the floor of the EUR/CHF to 1.25 from 1.20. The EUR/CHF has resistance at October 19th high of 1.2470 with support at its 200-day moving average at 1.2225.

Wheat – Wheat Prices Underperform

Wheat prices have begun to recover from their November lows but the commodity continues to underperform. In light of the strong equity gains on Wednesday this could be considered bearish price action as we would expect wheat prices to rise much further as market sentiment improves. Currently wheat prices are locked in a long term downtrend with support at the November low of $571 and resistance at the November 1st low of $611.

Technical News

The EUR closed last week below the psychologically important 1.35 level and a close below it on the monthly chart will carry an even greater significance. Both monthly and weekly stochastics continue to fall and a break of 1.3210 will likely test the October low of 1.3145. Below here at 1.3040 there is the 61% Fibonacci retracement of the move from June 2010 to May2011 though this may only prove to be a mile marker in the new downtrend for the pair. Support is located at the January low of 1.2870. The November 18th high of 1.3610 stands out as resistance.
Falling monthly and weekly stochastics may have the GBP/USD testing the October low of 1.5270 as the pair is pulling within striking distance of its long term uptrend from the 2009 low which comes in at 1.5050. Any move higher will likely encounter heavy selling from the July pivot at 1.5780.
The downtrend for the USD/JPY remains firmly intact and only a break above 78.95 from the falling trend line from the 2007 high may reverse the pair’s bearish technical sentiment. A break above this line may have the pair testing the most recent post-intervention high of 79.50, a level that coincides with the pair’s 200-day moving average. To the downside the November 18th low of 76.55 is the initial support, followed by the all-time low of 75.56.
The USD/CHF is testing its October high at 0.9310 and a break here will likely open the door to the pair’s 20-month moving average at 0.9460 and the February high of 0.9775. Initial support is located at the November 18th low of 0.9080 with a deeper move perhaps taking the pair to the November low of 0.8760.

The Wild Card

S&P 500
The stock index found resistance at 1,250 which is not only a big psychological number but the value also comes in at the resistance line off the October and November highs. Forex traders should note that a failure to break higher here and the index could turn lower to its first support level at 1,208 from the November 1st low. A continuation of the move higher and the next resistance is the October high of 1,288.

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