FOREXYARD: Forex News Blog

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• ‘Risk-Off’ Theme Prevails After Payrolls with Dollar Strengthening
• US Non-Farm Payrolls Rise Deceptive?
• Canadian Dollar Hits Back against USD Rise
• German Industrial Production Gives Breathing Room for Europe
• Thoughts before Non-Farm Payrolls
• Commodities Move Sharply Lower on Euro Decline
• Awaiting Tomorrow’s Non-Farm Payroll Data?
• EUR/USD Plummets to 9-Day Low
• German Factory Orders Flop in April
• BOE and ECB Hold Rates Steady, Yen Rises

‘Risk-Off’ Theme Prevails After Payrolls with Dollar Strengthening Posted: 06 May 2011 12:23 PM PDT Non-Farm Payrolls came in above expectations but the positive jobs report was not enough to reverse the change in market sentiment that began yesterday. The 'risk-off' theme continued with the dollar significantly stronger and the euro sold across the board. Commodities fared better today, the lone exception being crude oil. Despite a strong payrolls report the dollar buying continued for the second day in a row with the EUR/USD falling to a low of 1.4316 from 1.4540. The remarkable two day decline in the EUR/USD has shed more than 6 cents in the pair. Technical damage has also been done as the pair looks to close below the rising trend line off of the January low. For those looking to enter at a better level, a likely target for a potential entry may be found at 1.4150, the 38.2% Fibonacci retracement from the January to April trend. The EUR/GBP traded sharply lower by 1.3%, touching a low today of 0.8749 from 0.8871. Today's low for the pair coincides with the 38.2% Fibonacci retracement from the January low to the yesterday's high. Commodities are mixed as both gold and silver look to close near their opening day price while spot crude oil reached as low as $94.67 only to close at $97.55. One explanation for this week's reversal in commodity prices may be the expected cut off of excess liquidity in June when the Fed's QE II program is due to cease. Next week the Fed faces an inflationary conundrum with US inflationary data set to be released. This should test the resolve of the Fed doves as the headline CPI number rose 2.7% in March while the Fed's preferred measure of inflation pressure core CPI remains subdued at 1.2% y/y.

US Non-Farm Payrolls Rise Deceptive? Posted: 06 May 2011 09:56 AM PDT Although traders viewed the initial release of the drastic jump in today's Non-Farm Payroll (NFP) data with hefty optimism, do these numbers truly reflect what is happening in the American economy? An article released by CNBC earlier today has hinted that the payrolls data published this afternoon was in fact a deceptive rise which did not mirror the real story. The article discussed the optimism of the overall figure, but weakness found among the internal data set. Mainly, it noted that the labor participation rate remained unchanged; the "real" unemployment rate, which factors in underemployment and part-time workers desiring full-time work, actually rose to 15.9% since last month; the percentage of involuntary part-time workers remained unchanged; and, basically, that the more accurate household survey revealed a decline of 191,000 jobs in April as opposed to the NFP report of 244,000 new jobs being added. The rise in the unemployment rate to 9.0% from last month's 8.8% seems to support the assessment by CNBC. Several other articles have suggested the same, citing strong jobs data from the NFP, but weakness and high risk exposure which will likely drag on the US economy in the months ahead, leaving the Fed no choice but to hold rates at their current low. This continued rate differential will hold the USD lower versus its primary currency counterparts throughout most of 2011. But today's sudden flight to safe havens brought on since yesterday's announcement from the ECB that euro zone rates would be held steady with no timeline for a second hike in 2011 has continued to boost the dollar in trading. Whether this rise will continue in to next week is yet to be seen.

Canadian Dollar Hits Back against USD Rise Posted: 06 May 2011 09:49 AM PDT The Canadian dollar (CAD) has been losing ground against the US dollar (USD) since the beginning of this week. Last Friday's Canadian GDP figure, which revealed a quarterly contraction of 0.2%, has been pulling down harshly on the value of the Loonie. But today's employment data out of America's northerly neighbor has given traders a reason to hit back against the buck in today's trading. The value of the USD/CAD was recently trading at a 3-year low of 0.9445 this past Monday. Since last Friday's GDP publication, the pair had risen to as high as 0.9711; a 2.8% jump over four days. With this afternoon's employment data out of the Canadian economy, the CAD fought back with a strong push back towards 0.9595. The organization Statistics Canada this morning released two significant employment figures which have given traders impetus to buy back into the Loonie. The 12:00 GMT publication of Canadian Employment Change and the official unemployment rate both revealed highly optimistic figures which allowed the CAD to hit back against the USD. The Canadian unemployment rate fell from 7.7% to 7.6% since last month, but such a figure is considered a lagging indicator which merely completes the story already told in the weeks prior. However, the Employment Change report, which is similar to the American Non-Farm Payrolls (NFP), revealed the addition of 58,300 new jobs to the Canadian economy. The two numbers together have collectively pushed down hard on the USD/CAD. The pressure mounting atop the pair as a result may continue to provide bearish sentiment through the coming week.

German Industrial Production Gives Breathing Room for Europe Posted: 06 May 2011 09:44 AM PDT Today's reading out of Germany regarding its industrial production output since last month has given a number of traders reason to smile. Lately, the manufacturing and industrial sectors across Europe have shown ominous sluggishness that has begun to wear on market sentiment. Today's higher than forecast reading, however, has given some market analysts a little breathing room in their calls to go long on the region. Industrial production has always been a prominent factor in a country's economic outlook. Although it is not the only element to consider, it does provide a glimpse into the vast bulk of what many countries produce. Any slowdown in this sector, therefore, has the potential to wreak havoc on a nation's worth. The report, published this morning at 11:00 GMT by Germany's Destatis, measured the total, inflation-adjusted value of output from mines, manufacturers, and utilities in Germany; the euro zone's largest economy. Expectations were for a rise of 0.6%, but today's reading of 0.7% has allowed EUR traders to adjust their risk exposure to the upside slightly during mid-day trading. However, traders appear inclined to lean towards safer assets given the recent confusion wrought by the ECB's policy statements on Thursday. The EUR has therefore continued to lose ground against its primary rivals, and may continue to do so into next week.

Thoughts before Non-Farm Payrolls Posted: 06 May 2011 05:03 AM PDT The dollar is steady after yesterday's sharp appreciation as traders look to the Non-Farm Payrolls report. Yesterday's corrective tone should continue if the jobs report comes in on the low end of forecasts. The payrolls report is the main event this afternoon. Prior to the report's release the dollar has been consolidating its gains yesterday as the market appears to be in a corrective mode. Trader's should not mistake yesterday's appeal for the dollar as the cause of yesterday's dollar surge, but the extent of the market being over extended to one side enabled the sharp reaction. Economists forecast the jobs report to show an increase of 185K new jobs added to the US economy in the month of April. My thoughts are a release below this number would extend yesterday's move to the dollar and declines in commodity prices. An initial bounce in the EUR/USD could lead to further selling of the pair. Traders should remember the last jobs report on April 1st.. At that time market sentiment was in favor of the euro. The market turned from initially buying the dollar on the knee jerk reaction of the report, only to offer real money better levels at which to enter long on the euro. Judging from yesterday's trading, market sentiment is clearly in favor of the dollar. For the EUR/USD, a breach of 1.4500 would open the door to 1.4410 where the rising trend line from the January low comes into play. Below that supports rest at 1.4250 and 1.4150. A jump in the pair above 1.4600 would target the mid-April high at 1.4650 followed by 1.4750.

Commodities Move Sharply Lower on Euro Decline Posted: 05 May 2011 12:53 PM PDT The euro is in a free fall versus the dollar following a speech by ECB President that was absent of the typical wording to prepare markets for an interest rate hike. The pause in ECB tightening fed into risk aversion as commodities continued their decline in-line with US dollar gains. Today's sharp move lower across asset classes signals a change to the risk-off mode. The EUR/USD shed more than 3 cents today as the pair was in a tailspin, triggered after the ECB press conference that failed to produce live up to traders' interest rate expectations. The pair fell to a low of 1.4509 from 1.4840, taking out a plethora of stops on the way. The euro was also down sharply in the crosses with the EUR/GBP down at 0.8870 from 0.8996, and the EUR/JPY was lower at 116.53 from 119.63. Trichet's speech had the effect of reversing the overbought euro but also the commodities bubble. Crude oil prices collapsed below $100 for the first time since mid-March. Gold and silver also continued their declines that began earlier this week with spot gold falling to $1,472 and spot silver dropping to $35.35 from $39.24. Spot silver is down this week by almost 26%. The S&P 500 is down by 1.00%. While it may be premature to call this a turn in the market, the sharp move across asset classes signals a change to the risk-off mode. The risk aversion could carry over into tomorrow's trading with the release of the monthly jobs report. Traders should keep one eye on global equities as a rally in the bourses may bring about a renewed bout of euro buying. However, a weak jobs report may feed into further USD buying and the EUR/USD decline could continue. A drop to the 1.4280 support level would still keep the pair's bullish trend intact, perhaps inducing buyers at better levels to enter.

Awaiting Tomorrow’s Non-Farm Payroll Data? Posted: 05 May 2011 12:38 PM PDT A big hubbub has been made regarding the past two weeks. Last week it was interest rate differentials and the sharp decline of the US dollar. This week it is the death of Osama bin Laden, the Royal Wedding in Britain, and Golden Week in Japan (not to mention the celebration of Cinco de Mayo by the Spanish-speaking world is today). But have you forgotten the most impactful data release of each new month? This week is the long-awaited Non-Farm Employment Change (Non-Farm Payrolls, or NFP) release from the US Department of Labor's Bureau of Labor Statistics. This data release is perhaps the most important figure published by the US economy. More so than interest rate decisions. More so than inflationary figures. More so than industrial readings. Non-Farm Payrolls is the primary gauge of the US employment sector. It carries the heaviest impact on the forex market since it is a direct line into the lifeblood of the American economy: jobs. Yesterday's NFP estimate by Automatic Data Processing Inc. (ADP) revealed a below-forecasted figure of only 179K jobs being added by the private sector. Tomorrow's NFP report will factor in the same information but include jobs data from the public sector as well. It is a leading indicator of economic health and should never be disregarded, especially in these times of economic uncertainty. Today's rate statements out of Britain and the euro zone left many investors unsure about the timing of future rate decisions. The result has been a broad sell-off in the euro and British pound in exchange for safer assets like the US dollar and Japanese yen. Should tomorrow's NFP data come below forecasts, this shift into safe haven investments may pick up steam, further boosting the USD and JPY. Don't miss out on tomorrow's NFP data release, it should be a doozy.

EUR/USD Plummets to 9-Day Low Posted: 05 May 2011 11:22 AM PDT Traders active in this afternoon's European session no doubt witnessed the sharp drop in the value of the euro versus its primary counterpart, the US dollar. Following interest rate decisions out of Britain and the euro zone, the 17-nation single currency suffered a heavy loss as traders bailed out of their long positions in exchange for safe haven investments. The US dollar and Japanese yen were the top performers today, both gaining heavily against their European counterparts. The EUR/JPY moved from as high as 121.80 a few days ago to a current price near 116.70. The EUR/USD also shifted to a 9-day low with a price of 1.4603, a mark not seen since March 26. The European Central Bank (ECB) held interest rates steady today but ECB President Jean-Claude Trichet's remarks were a little too dovish for the likes of EUR traders. Many had bailed out of their riskier positions in exchange for the safety of the dollar and yen. The ECB rate statement provided a sentiment that future rate decisions were up in the air. Traders were left unclear about ECB timelines regarding future rate decisions which have stirred heavy uncertainty and a flight to risk in today's trading. The momentum in the EUR/USD may not have moved beyond the bounds of its current bullish channel, but traders will likely want to expect a continuation of this bearishness through the remainder of the US trading session.

German Factory Orders Flop in April Posted: 05 May 2011 11:04 AM PDT Today, amid the chaotic volatility surrounding the interest rate decisions out of Britain and the euro zone, a little piece of data slipped by almost unnoticed by many traders. Germany published data which revealed a stark 4.0% decline in new factory orders. Expectations for this figure were for a 0.4% growth in the manufacturing sector of the German economy. No one was expecting such a dramatic flop. A series of articles have pointed to the faltering of industry across Europe, Britain, Japan and the United States. This data merely piles atop those earlier notions and strengthens the idea that global manufacturing and industry are in decline. Whether high oil prices are to blame for this downturn or whether demand has slumped, one thing is for sure and that is global industry is beginning to gouge into economic recovery. Survey data is also showing a flop in sentiment towards manufacturing and industry. The manufacturing PMI survey data out of China, Britain, and Germany this week all came out below forecasts, revealing not merely a physical decline, but a downward shift in outlook among manufacturers and purchasing managers. With much of the forex world attuned to the news of Osama bin Laden's death and the interest rate differential between Europe and the United States, this industrial flop is passing by unnoticed and it is to our own detriment that we ignore its effects on the forex world.

BOE and ECB Hold Rates Steady, Yen Rises Posted: 05 May 2011 05:20 AM PDT As expected both the Bank of England and the European Central Bank held their based lending rates steady as all eyes turn to today's ECB press conference where a potential signal for next month's ECB interest rate increase could come. Commodities continue to trade lower, influencing equity markets with European bourses in the red. Silver prices dipped below the $38 level for the first time since early April. Speculations abound that the recent reversal in silver prices may be a signal for a market turn. The FTSE is down 0.7%, highlighting the risk-averse trading environment. In volatile trading, the best FX performer has been the Japanese yen with the USD/JPY falling below the 80 yen level for the first time since the G7 intervention in March. The USD/JPY continues to move south of this key level, increasing the risk of future acts of intervention in the FX markets by the Japanese Ministry of Finance to weaken the yen. The Canadian dollar is also reversing with the greenback strengthening. The USD/CAD reached as high as 0.9773, its highest level since mid-April. Traders' attention now turns to the ECB press conference where all eyes will be on ECB President Jean-Claude Trichet. The key words to follow during Trichet's speech are "Strong vigilance". This should be the signal both economists and traders are looking for. An increase to future ECB rates would be a catalyst for the euro while a pause in the ECB tightening cycle should trigger a sell-off in the euro. The EUR/USD is currently trading at 1.4820 prior to the press conference. The first resistance is found at yesterday's high of 1.4940 with a target at the 2009 high of 1.5140. Support comes in at the bottom of this week's consolidation pattern at 1.4750, followed by 1.4630.

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