Mixed signals on the economic front drove currency markets overnight, with the US dollar finding mild strength as equity markets struggled to tread water on the back of less than convincing labour data. The US dollar index which measures the dollar's value relative to six major foreign currencies found moderate support rising 0.36 per cent to 74.63.
Labour data in the States saw the ADP employment figures show a fall of 169,000 jobs in the month of November, compared to the 150,000 cuts expected. These figures have investor's rethinking their stance on the much anticipated Nonfarm Payrolls due on Friday, which are expected to show a decline of 111,000 jobs.
The Fed's Beige book was also released overnight, which shows a detailed account of the views of analyst, market experts and economist in 12 Federal Reserve districts, in relation to the near-term economic outlook and current business conditions. Although the overall tone was positive and showed moderate improvements since the last report, it also showed labor market conditions still of prime concern.
Recently Fed officials have suggested the Central Banks current stance on interest rates could remain into 2011 as inflation and economic growth are likely to remain below desired levels. But is this enough to combat the dire unemployment situation going forward? Increasingly we are seeing renewed calls from economists to inject the US economy with another shot of stimulus, before unemployment threatens to hamper a sustained recovery.
Perhaps a good indication of the cautiously optimistic investor mood is the latest surge on Gold, which has risen to another all time high of US$1218 an ounce overnight. From a technical perspective the latest surge in Gold coincides with the RSI (Relative Strength Index) showing overbought signals with the price action around the '80' levels. Technical analysts believe an RSI reading of '70' or greater suggest a reversal of price action is imminent. The price of Gold may technically be poised for a reversal; however important considerations need to be made to the ongoing pressure the US dollar is facing, which increases the demand for Gold as investors and Central banks alike seek to hedge against their depreciating exposures to the ailing US currency.
Overnight saw the Aussie dollar lose momentum stalling near highs of 93 US cents and has retreated to current levels of 92.5 US Cents. We expect the Aussie to remain well supported ahead of Retail Sales data due at 11:30 ADST which are expected to grow 0.4 per cent in the month of October.