Major USD Pairs-An Overview
The dollar fell on the first trading day of 2010 versus all of its major counter-currencies, most notably versus the euro, aussie and kiwi. The most cogent explanation of this move is that investors were locking in gains after a decent dollar rally at the end of last year. Also, a positive manufacturing survey out of the EZ supported the euro today, while a renewed rally in commodities, particularly crude oil and gold, prompted buying of commodity currencies such as the Australian, New Zealand and Canadian dollars.
Optimism about the prospects for a U.S. recovery seemed to have supported the dollar toward the end of last year, but it looks as if more evidence of a strengthening economy is needed to justify further gains in the greenback.
The US Institute for Supply Management reported that national factory activity rose to 55.9 in December from 53.6 in November. The forecast was for a reading of 54.3. This was the 5th consecutive month of growth for the US manufacturing sector, and the number was at its highest level since April, 2006. Any number above 50 signals expansion in the sector. The positive report appeared to halt the dollar down-slide, but failed to inspire any kind of rally. With all eyes on Friday's jobs report, traders were hesitant to push the dollar higher today due to the ISM report.
FX Investors are anxiously awaiting the U.S. non-farm payrolls report on Friday which will have a dramatic impact on the direction that the dollar will take this month. Early last month, NFP showed that the US economy shed a far fewer-than-expected 11,000 jobs in November. For December NFP, the median forecast is for a decline of 10,000 jobs, 1,000 more jobs lost than in November. However, the predictions range wildly, from a loss of 80,000 jobs to an increase of 50,000. For all USD pairs, volatility is expected to be high this week, and direction will be determined by economic indicators released by the government, as traders struggle to gauge the US economic recovery and the time-table of the FED's monetary policy decisions. We believe that the risk is weighed heavily on the downside for the USD. With last month's almost unbelievable improvement in NFP numbers, many traders are now hoping for Friday's NFP numbers to show job growth, or at least a small loss comparable to that of last month. If the numbers are disappointing, the dollar could get dumped again.
Eurodollar (Technical Analysis)
The EURUSD recovered from earlier falls during the Asian session, which took it as low as $1.4258. It then shot up throughthe 1.4360 resistance level to test 1.4450. Technically, the short term indicators show the pair moving down to re-test 1.4360, which will now serve as support, and if that level is broken, it will likely continue down to test the 1.4275 support level.
Equities in Asia, Europe, and the United States climbed in the first session of the new year on rises in crude oil and other commodity prices. US stocks received a further boost from the manufacturing sector data released today, showing an improvement for the fifth straight month as well as an upgrade of Intel, Inc. by a major broker.
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