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ADP Foreshadows Sharper NFP Drop; USD Under Pressure
Gold Testing All-Time High, Again
Will Crude Oil Reach A 2-Month Low?
GBP/USD – Moving Average MACD Combo Trade

ADP Foreshadows Sharper NFP Drop; USD Under Pressure

Posted: 01 Sep 2010 05:53 AM PDT

The US Non-Farm Employment Change report, or Non-Farm Payrolls (NFP) for short, is a strong indicator of market activity in one of the world’s largest economies. As such, this report carries a significant impact on the value of the US dollar (USD) through various channels, both direct and indirect.

These channels have very broad implications for analysts. For instance, if the number of employed people in the US is increasing, we can deduce that more jobs are being created and the US economy is on its way to recovery. A negative reading may be reflected with a sharp flight away from the greenback. A positive figure, however, could help the USD halt its latest decline against the other major currencies.

The US experienced a rapid rise in employment from January through June with the 10-year census hiring by the US federal government. However, those recently employed by the Census Bureau have now been counted, and we’ve seen US employment figures decrease just as rapidly over the past two months since those numbers are no longer included in the data.

With Wednesday's ADP report verifying the recent pause in employment growth across the US, a number of analysts are now expecting Friday's release to be a bit more ominous than previously thought. With private sector employment showing a cut of 10,000 jobs, the addition of the federal government's cuts from the Census Bureau should show nation-wide employment in a much worse position than ADP's private sector figures. We have seen the downward pressure building on the US dollar this entire week as a result.

At the moment, the NFP appears to be showing an expected 101,000 jobs lost in August. However, if today’s ADP figures are any sign of what to expect, a reading much lower than -101K may be developing. I wouldn’t be surprised to see the NFP forecast revised before Friday’s release to reflect this expectation. Tied in with this expectation is a pricing in of a weaker USD. We’ve seen the greenback dropping steadily against most of its currency rivals this week, likely due to a rise in risk appetite following positive news from China and Australia, but also from an expected slow-down in American economic recovery.

Gold Testing All-Time High, Again

Posted: 01 Sep 2010 03:41 AM PDT

Spot gold prices have surged and are closing in on their all-time high. Negative risk sentiment surrounding the recovery of the global economy and renewed inflation fears have caused traders to once again begin to bid the price of gold higher.

The price of spot gold yesterday up at $1,246.75, after opening the day at $1,236.75.

Spot gold prices have climbed off of their lows of $1,156. The rebound in the price comes as fears of a double dip recession and slowing global economic growth are weighing on the market, influencing traders to buy gold as a safe haven asset.

Negative fundamentals from the US housing sector may be influencing traders. A lack of confidence and spending has ensued since the US government ended the subsidies it enacted to support the lagging housing sector.

Yesterday's release of the Federal Reserve Open Market Committee (FOMC) meeting minutes provided an insight into the Fed's thought. The Fed voted 9-1 to keep the Fed's balance sheet at its current level by purchasing treasuries as the MBS that the Fed hold on its books expire. Dissent was voiced during the 2 days meeting as many FOMC members felt deflation was not an issue. However, they did express their views that higher inflation could return if the Fed did not drain the excess liquidity from the money supply.

Other factors that may be moving the price of spot gold higher are heavier trade volumes as traders return to their trading desks from the summer holidays. Also wedding season in India during the fall months typically spurs an uptick in the demand for gold.

Turning to the weekly chart, a rising trend line begins at the end of September of 2009 with the price making 3 points of contact with the trend line. This indicates this is a significant trend line. Momentum points to a price move higher as the Momentum (7) is sloping higher.

The all-time high of $1,265 looks to be in range with support appearing at $1,224, (S1) followed by $1,156 (S2).

Gold Weekly

Will Crude Oil Reach A 2-Month Low?

Posted: 01 Sep 2010 02:49 AM PDT

The sharpest trend that was observed during yesterday's trading is bearish crude oil. Crude oil has erased almost all of this week's gains, and has bottomed at $71.52 a barrel. Crude oil is dropping due to concerns that the U.S. economy, the world's largest oil consumer, is not recovering as fast as it should. Several leading economic publications from the U.S. have recently failed to reach expectations, and it is now commonly agreed that the recovery pace is slower than estimates.

However, this trend might reverse today, as a heavy news day, especially from the U.S. economy is expected.

Here are today's leading news events:

• 08:30 GMT, British Manufacturing Purchasing Managers' Price Index (PMI – It is a survey of about 600 purchasing managers who are asked to rate their current business conditions. If the end result will beat expectations for 57.1, the GBP might be supported.

• 12:15 GMT, U.S. ADP Non-Farm Employment Change – It is an estimation of the Non-Farm Payrolls release which is expected by Friday. The ADP forecast is considered to be very reliable, and thus tends to have a large impact on the market. If the end result will be positive, the dollar might be boosted as a result.

• 14:00 GMT, U.S. ISM Manufacturing Purchasing Managers' Index (PMI) – This indicator is similar to the British one. Analysts have forecasted that the result will be 53.2. A higher result might support the dollar.

GBP/USD – Moving Average MACD Combo Trade

Posted: 31 Aug 2010 12:39 PM PDT

The Cable continues to move lower and is setting up an opportunity to short the pair and enter into a trend at the beginning of the move.

Since the August high the price of the GBP/USD has fallen. The long term trend line has been broken and the trend has shifted to the downside. Now the GBP/USD is ripe for an entry short.

The trade setup uses the 50 and 100 day exponential moving averages (EMA) along with the MACD. The trade can also use a simple moving average, but the goal is to enter into a trend at the early stages in order to capture the most from the directional move. The exponential moving average adds more weight to the most recent close. This should help to get into the trade quicker.

Once the price falls below the farthest moving average by more than 10 pips, an entry short should be made. Currently the 100 day EMA is trading at 1.5335. Today the low for the GBP/USD was 1.5326, 1 pip shy of triggering our trade. It is apparent that the 100-day EMA is acting as a significant support level.

A filter for the trade is the MACD histogram. The MACD histogram is currently trading at -34. If the histogram had not moved into the negative territory, the trade would be rejected.

A stop can be placed at the 5-day high of 1.5600 to limit losses if the price goes against the trade.

Profits should be taken at 2x risk, or roughly the early June high at 1.4770.

GBPUSD Daily