The U.S. Dollar lost ground against the Euro on Thursday as traders expressed their worry about the U.S. Jobs report on Friday. Much of the trading is just price adjustments. Even if the report comes out extremely bad the Fed cannot cut anymore. The government is not going to do anything to stimulate the economy until Obama takes over either. All this number is going to represent is the fact that the economy is bad. All the experts have been saying it is going to get worse before it gets better. Well this report is going to be part of the worse.
The EUR USD is going to trade in a wide range until one of the economies starts to make strides toward a recovery. Even if the unemployment report is extremely bearish, do not expect too much of a rally. With the European Central Bank expected to knock rates down on January 15, do not expect the Euro to rally too far. Continue to look for volatile two-sided trading over the next few months.
Traders helped rally the GBP USD after the Bank of England cut interest rates only 50 basis points to 1.50%. Although economists pegged the cut at exactly 50 basis points, traders had been expecting more. The strength in the market on Thursday was generated by traders adjusting for the better than expected interest rate differential. Long term traders should brace for a weaker Pound. The U.K. economy is in terrible shape led by a nearly frozen mortgage market and weak housing market. Short-term traders should note that the recent rally has been triggered by short-covering and bottom-picking. There have been no solid economic reasons for the rally.
The combination of yesterday's ADP employment forecast and today's lower than expected retail sales at Wal-Mart were strong indications that the U.S. economy was worsening. Traders shunned risk today and sought the safety of the Swiss Franc. As long as there is demand for safety and liquidity, look for a decline in the USD CHF.
The USD JPY fell once again as traders gave up their quest for higher returns for the safety and security of the Yen. Some traders went long the Yen in anticipation of a worse than expected U.S. unemployment report. Short-term, the USD JPY looks weak, but once Obama gets to implement his new stimulus plan and traders start to gain confidence in the market, look for the Yen to break.
Weaker retail sales by Wal-Mart and expectations of an extremely weak unemployment report kept pressure on the USD CAD throughout the day. Yesterday's huge break in crude oil and other commodities hurt the Canadian Dollar, but today's news about Wal-Mart was an indication that the U.S. economy is not immune from more weakness.
Australian Dollars felt downside pressure most of the day as trader appetite for risk declined. Weakness in both stocks and commodities has hurt the Australian economy the past seven months, but a series of rate cuts and well-timed interventions have helped to provide short-term support. This move may come to an end if risky assets cannot attract new buying. Look for a sideways-to-lower trade unless the U.S. equity market rallies sharply higher.
The NZD USD is facing the possibility of another leg down if commodity and stock markets decline. Trader appetite for risk is down this week due to the negative economic reports from the U.S. Lower commodity prices could lead to another interest rate cut by the Reserve Bank of New Zealand. Lower rates usually weaken the currency.
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