The non-farm payrolls have come and gone and the market is moving without a clear direction so far! The euro and the pound have imitated a roller coaster since the release and although we saw a brief rally in the EUR/USD towards 1.2930, the move found sellers high up and it dived once again towards 1.28. The data was worse than expected and traders are clearly confused as which way to go!
The EUR/USD is trading within the 1.27-1.29 range since early in Europe's opening and the payroll data has not yet provided us with any breakouts from those ranges. So far the pair finds resistance at 1.2930. However a clear break of the latter level may lead to further gains towards 1.30. On the downside, if the pair closes below 1.28, then there is very real possibility we see a continuation of the move towards 1.27 early next week!
Today's calendar saw important data come out of UK, Canada and US. Firstly we had the PPI from the UK which jumped unexpectedly, however Manufacturing production came out lower, therefore traders shrugged off the data. Later on we had a big surprise in Canada's Employment Change and Unemployment rate, as both came out much worse than expected, giving the Canadian dollar a nasty surprise as it moved towards 1.2550 – a new low for the week.
The most important event of the day was the US non-farm payrolls, together with the unemployment rate, both of which managed to disappoint us once again thanks to worse than expected data. The jobs lost in the last month were almost 600.000, making it very hard for the unemployment and the economy itself. In the space of three months, we have managed to see over 1.5million jobs lost, a situation which may continue for the coming months as conditions seem to worsen by the day.
Traders are pining new hope on the latest Obama stimulus package which is very close to being accepted by the senate, therefore we saw a jump in futures and risk appetite came back slowly! There is speculation amongst investors that with the latest bad payroll data, the government will be more willing to agree on a new stimulus package which could eventually lift US out of recession, however it may take a long time before any normality is restored, making investors wary of any big moves on the upside!
This week had enough excitement to keep us going, thanks to the ECB and BOE rate decision, and the market is now predicting what the Central Bank's next move will be in terms of rates. The Bank of England is clearly in an easing mode at the moment and we may see further cuts - even below 1% - if things don’t show some kind of improvement. Remember that King said all options are on the table, even zero rates, something that Trichet was against from the beginning of his statement. ECB recognize the deteriorating economic conditions and may well continue to cut in the coming sessions; however it looks like they don’t want to go below 1%.
Let’s see how the week will end and if the euro manages to close above 1.29. If it does, it could try for 1.30 or maybe even further next week. However if we see that the pair stalls and closes below 1.28, then it looks like south may be the only way for the euro for now…
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