The U.S. Dollar traded higher against most major currencies on Monday. The falling stock market contributed to the selling pressure in the higher-yielding currencies while a move to weaken the Japanese Yen triggered the opposite reaction by traders.
U.S. stocks extended losses throughout the session after the release of U.S. income and consumption data showed meager advances in income and consumer spending. Increased M & A activity and a stock buyback by HP also failed to generate any interest in the long side of the market.
Some traders believe that Friday’s U.S. Employment report is the problem. Investors may be staying on the sidelines worrying about it. This month’s jobs report has taken on added importance following a summer of weak housing and consumer data. What it is basically coming down to is the thought that if there are no jobs, there will be no recovery.
The EUR USD felt pressure after failing to rally following a test of a 50% level at 1.2754. The key area to watch is 1.2605 to 1.2687. A break through this zone will reaffirm the downtrend and likely trigger an acceleration to the Fibonacci retracement level at 1.2433.
The European Central Bank will make its latest interest rate decision on Sept. 2. It is expected to say the same thing the Federal Reserve has been saying, expect more economic uncertainty and that the road to economic recovery will remain bumpy.
The GBP USD is trading lower and in the middle of nowhere on the daily chart. It’s hard to describe what traders are trying to do based on the current chart pattern. What is clear, however, is that a break through the recent low at 1.5371 is likely to trigger a break all the way down to the major 50% price level at 1.5113.
The biggest concern among British Pound investors at this time is whether the economy can withstand the jolt from new taxes and financial austerity measures.
The big news story today involved the Japanese Yen. Early in the trading session, the Bank of Japan announced that it would expand its current 20 trillion Yen quantitative easing program to six months from its current three-month time frame. At the same time it increased the amount of funds available by 10 trillion Yen.
The BoJ expected this action to weaken the Yen instead it was the USD JPY that traded sharply lower. Traders reacted as if they had expected the move or were waiting for something more intense.
Last night the Dollar/Yen stopped just short of turning the main trend on the daily chart to up with a move through 85.91. The subsequent break identifies the significance of this price level.
Falling demand for higher risk assets pressured the commodity and risk-linked Canadian Dollar and Australian Dollar. Both markets resumed their downtrends after three day short-covering rallies.
The rally in the Australian Dollar ended inside of a short-term retracement zone at .8995 to .9049. If equities continue to weaken, then look for the start of a correction to .8644.
Thin trading conditions can lead to excessive volatility this week. U.S. employment will be the catalyst this week, starting with Wednesday’s ADP Employment Change, followed by Thursday’s Weekly Initial Claims. Finally, on Friday, the U.S. reports Non-Farm Payrolls and the unemployment rate. Preliminary guesses are for NFP to show a loss of 106K to 120K jobs. The unemployment rate is expected to come in at 9.6%.
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