Market Volatility Expected Ahead of NFP Report This Week

Despite a better than expected US GDP report on Friday, the US dollar took somewhat significant losses against the Japanese yen before markets closed for the week. Meanwhile, after turning bearish during mid-day trading, the EUR/USD was able to stage an upward correction to close out the week relatively unchanged from where it began the day. This week, traders will want to pay attention to several highly important international news events. The Japanese Monetary Policy Statement, a speech from ECB President Draghi, US manufacturing data and finally the all-important US Non-Farm Payrolls report, all have the potential to create heavy volatility in the coming days.

Forex Market Trends

Daily Trend down up down up down down
Weekly Trend down down up up down down
Resistance 1.3023 1.6177 80.61 0.9454 1.0452 0.8141
1.2977 1.6133 80.19 0.9410 1.0407 0.8096
1.2944 1.6105 79.94 0.9382 1.0379 0.8068
Support 1.2893 1.6061 79.52 0.9340 1.0335 0.8022
1.2865 1.6033 79.27 0.9312 1.0307 0.7995
1.2816 1.5989 78.85 0.9268 1.0263 0.7949

Economic News

USD – Batch of Significant US Data Set to be Released This Week

The US dollar had a relatively slow trading day on Friday, despite a slightly better than expected US GDP figure which highlighted the slow, but steady pace of the American economic recovery. Against the Canadian dollar, the USD was able to advance more than 40 pips during the first half of the day to trade as high as 0.9993. A downward correction resulted in the greenback finishing out the week at 0.9973. The USD/CHF saw also saw gains of 43 pips during morning trading before a bearish reversal caused the pair to close the week at 0.9349, virtually unchanged for the day.

This week, dollar traders can anticipate significant activity in the marketplace, as several highly impacting US economic indicators are set to be released. Tuesday’s CB Consumer Confidence figure, followed by the ADP Non-Farm Employment Change and ISM Manufacturing PMI on Thursday, and finally the all-important Non-Farm Payrolls figure on Friday, all have the potential to create market volatility. Any better than expected data could lead to risk taking among investors, which may result in dollar losses against higher yielding assets like the euro and AUD.

EUR – Concerns Regarding Spain and Greece Limit Euro Gains

Uncertainties among investors regarding economic instability in Greece and Spain continued to weigh down on the euro before markets closed for the weekend on Friday. While some risk taking helped the common currency recoup losses during afternoon trading, virtually no gains were made for the day.

The EUR/USD fell more than 60 pips during the morning session to trade as low as 1.2881, before an upward correction brought the pair to 1.2938 by the end of the day. Similarly, the EUR/GBP fell more than 30 pips before staging a recovery during the afternoon session to trade as high as 0.8034, roughly the same level as the beginning of the day.

This week, in addition to a batch of significant US news, euro traders will want to pay close attention to a speech from ECB President Draghi and an Italian bond auction, both scheduled to take place on Tuesday. Investors will be watching Draghi’s speech for clues as to the current state of the debt crisis in Spain and Greece. Any optimistic statements from the ECB President could help the euro turn bullish before Friday’s crucial US Non-Farm Payrolls report.

JPY – Yen Closes Week Out on Bullish Note

After speculations that the Bank of Japan (BOJ) will soon initiate a new round of monetary easing turned the yen bearish against most of its main rivals early last week, the currency was able to recover some of its losses before markets closed on Friday. The EUR/JPY tumbled close to 90 pips to trade as low as 102.67 during mid-day trading. An upward correction brought the pair to 103.03 by the end of the day. Against the US dollar, the yen gained close to 40 pips for the day. The USD/JPY closed out the week at 79.63.

This week, yen traders will want to pay close attention to Tuesday’s Japanese Monetary Policy Statement and Bank of Japan press conference. If the BOJ does choose to initiate a new round of monetary easing to boost Japan’s export industry, the yen could see significant losses against both the US dollar and euro.

Crude Oil – Oil Gains from US Supply Side Fears

Concerns among investors that a hurricane could disrupt US oil refining capabilities this week boosted the price of crude during the European session on Friday. Past disruptions to the US’s ability to refine oil have often resulted in an increase in price. Oil closed out the week at $86.13, up approximately $1.20 a barrel.

This week, oil traders will want to closely monitor the impact Hurricane Sandy has on US oil production. Any prolonged disruptions could drive prices higher. Additionally, Wednesday’s US Crude Oil Inventories report has the potential to create volatility in the price of crude.

Technical News

The Williams Percent Range on the weekly chart has crossed into overbought territory, indicating that a downward correction could take place in the coming days. This theory is supported by the Slow Stochastic on the same chart, which has formed a bearish cross. Traders may want to open short positions for this pair.
Most long-term technical indicators place this pair in neutral territory, making a definitive trend difficult to predict at this time. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.
The Relative Strength Index on the daily chart is approaching the overbought zone, meaning that this pair could see a downward correction in the near future. Furthermore, the MACD/OsMA on the same chart appears close to forming a bearish cross. Traders will want to keep an eye on these indicators, as they may signal an impending downward correction.
The Slow Stochastic on the weekly chart has formed a bullish cross, signaling that this pair could see an upward correction in the coming days. Additionally, the Williams Percent Range on the same chart is currently in oversold territory. Opening long positions may be the smart choice for this pair.

The Wild Card

The Bollinger Bands on the daily chart are narrowing, indicating that this pair could see a price shift in the near future. Furthermore, a bullish cross has recently formed on the same chart’s MACD/OsMA, signaling that the price shift could be upward. This may be a good time for forex traders to open long positions ahead of a possible upward correction.

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