Last Friday confirmed the beginning of a down trend in unemployment in the USA, and while the employment change was still negative, the trend was improving as well. This is important in that, from an historical perspective unemployment is highest at the end of a recession.
So why the lack of strong increase in risk appetite? Well, the market is centered on sentiment, which is how the participants feel about the economy. So, the fact that the unemployment numbers are signaling the beginning of economic recovery is ignored. However, to an informed trader ignored information is gold. The sentiment of the markets can turn quite slowly, however as recovery begins to take hold more and more data will come in better than expected and the market will no longer be able to ignore it. This week has many good opportunities for better than expected news so look for opportunities to buy risky currencies.
From a technical perspective, the USD is sitting at highs from last July. While according to the stochastic oscillator it is overbought against the EUR GBP and AUD on a day chart. In other markets, US equities are sitting at sentimental support with the DOW hovering around 10,000. Gold has maintained it drop that began this year, showing a build up in risk pressure.
Fundamentally, growth has been signaled in the USA, while technically the USD is overbought, making for perfect condition for a rally in the risk based currencies. There are several events later this week that have potential to spark a selloff in the USD.
