USD Stays Weak Ahead of Non Farm Payrolls
Good Morning,
The data is coming fast and furious this morning. First off, let's analyze the data that gets the most scrutinized the day before our monthly NFP report. That is the weekly claims report. Analysts were jumping up and down over it as it came in well below expectations (the revisions to last week's number were just above last week's results). So, yes, it was a better number than expected. But overall, the average is still creeping higher and it seems that the 350k level is providing "support".
Shortly after, we had our second number of the day: ISM Services. You would think if Tuesday's manufacturing data was better than expected that surely the services sector would come in above expectations as well. That hasn't been the case over the past few months as it seems everything out there financially has some type of divergence. The ISM headline number came in at "expansion levels", but still well below expectations. Worse yet, the new orders index and employment components came in below expectatoins as well.
If you take a close look at the economic numbers over the past 6-8 weeks, the majority are coming in well below expecations. Make sure you keep tabs on the "whopper" of numbers tomorrow in the form of monthly NFP. Expectations are around 175k and I don't think anyone should be raising expectations based on today's initial claims. I still am of the opinion it could come in at or slightly below expectations. Continuing to monitor this data is crucial, or is it?
When I ask you "or is it" and put "whopper of a number" in quotations, I am doing so because we all have to remember that the Federal Reserve is very much in play. No one knows "how bad it has to get" for underperforming data (an underperforming economy) to bring back the Fed and its "QE Tweak" measures. So, as I have said before, good news is good for the economy and bad news is good for the economy.
Now to the technicals. The forex markets are somewhat resembling equity markets. Yesterday was a great example of this when equities started of weak and the USD started off strong. Across the board, the USD weakened as equities rallied into the close. I hope you are aware of this relationship as there has been a great relationship with US equities getting oversold and the USD moving into overbought territory. Day after day, as equities catch that late day bid, the USD catches the overbought blues.
One currency pair that bucked the early morning trend of slightly weaker equities and a slightly stronger USD was the EUR/USD. The ECB decided to leave interest rates alone as inflation is runniing above 2% and just like the Fed, may be waiting for more direr of a situation to jump in and provide supportive measures:
Past performance is not indicative of future results
The question becomes, will the EUR/USD get weaker and retrace the early mornging upmove if equities weaken. I have a feeling, based on early action, equities may not weaken much, so based on the early morning move, it could be a tighter range as we move through the trading day and approach tomorrow's report.
You also need to keep in mind the EUR/USD on a longer term timeframe no matter what style (length) of trader you are:
Past performance is not indicative of future results
That is a pretty tight range we have been in for the month of April: 1.3000 to 1.3276. Seems to me that we are back in the middle of that 276 pip range as currently we are trading at 1.3157.
Moving on to equities, it seems an area of old resistance is providing new support in the SPX.
Past performance is not indicative of future results
And remember, weak data apparently can't get the equity markets to move down, so what happens when we get good data? The bulls are clearly in charge in equities and the bears seem to be in charge in the USD.
But, location, location, location. Since we seem to be in trading ranges, you must use the charts to carefully plan your entry, exits for losses and profits and management of the trade.
Happy Trading and Be Environmentally Cool
Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
