Thursday, January 13, 2011

Forex Traders Place the Spotlight on the Dollar as Nonfarm Payrolls Takes Center Stage

Talking Points
* ADP Employment More Than Doubles Expectations
* Employment Index Falls To Lowest Level Since March
* ISM Manufacturing Remains at Elevated Levels
* Fed Says Labor Market Conditions Remain at Depressed Levels
* Unemployment Rate Expected to Scale Back From 9.8 Percent

Forex traders will place the spotlight this week on the highly
anticipated U.S. nonfarm payrolls report, which will be released on
Friday at 13:30 GMT. Economists are expecting payrolls to jump 150K,
which will mark the highest reading since October. With uncertainty
surrounding growth in the world's largest economy, a better than
expected report may be the catalyst needed for the greenback to
continue its journey. Indeed, market bias going into the report is
dollar positive; however, rather than anticipate currency moves, we
will await confirmation of the release. It is worth noting that last
month's expectations were also for a 150K increase, but figures rose
a mere 39K and market reaction was dollar weakness against all major

Ahead of the release, the ADP employment change more than doubled
expectations in December and fueled optimism that nonfarm payrolls
could top economists' predictions. Figures rose a massive 297K amid
forecasts of 100K. ADP developments ahead of the payrolls report are
worth noting due to the fact that the index tends to undershoot the
labor department's measure. In turn, many traders are expecting the
private component of the NFP report to exceed forecasts. Though the
headline figure bodes well for the world's largest economy, the ADP
data may have been imprecise. As stated by Goldman Sachs and JP Morgan
economists, seasonal factors may have been the driver behind the
impressive numbers.

Meanwhile, the employment index fell to 130 in December
from 134 the month prior to mark the lowest level since March 2010.
The report is of great importance because the index measures overall
employee demand from online recruitment activity, reviewing more than
1500 websites. In turn, the index is indicating that hiring may remain
depressed in the near term. The decline in help wanted ads also backs
the Fed's concerns surrounding high unemployment. Not to overlook,
the ISM non-manufacturing report showed that the employment component
continues to hover around September's level.

All in all, traders should trade carefully ahead of the release as the
dollar stands at the crossroads. Indeed, the release may add color to
the bleak dollar picture and pave the way for a profitable trade
heading into next week's session. The dollar has been gaining
momentum recently on the back of positive fundamentals in the U.S.;
thus, a better than expected report will push the buck higher.
Conversely, a dismal NFP figure may set the stage for a short dollar
position as concerns surrounding inflation and the labor force
remains. Nonetheless, gauging sentiment will be as important as the
report itself.

Created by Michael Wright
Source: Bloomberg– Created by Michael Wright

The unemployment rate in the U.S. has fallen from a high of 9.9
percent in April to 9.5 percent in July and now stands at 9.8 percent,
according to the U.S. labor department. Economists are now expecting
the jobless rate to return to at least 9.7 percent in December.
AUDUSD Daily Chart
Source: Intellicharts – Prepared by Michael Wright

AUDUSD: The pair has extended its three day decline and now looks
poised to test the lower bounds of the ascending channel that has
remained intact since May 2010. Technical developments as of late
point to losses in the pair and a break below this area may be in the
horizon. The MACD has crossed over to the downside, while our user
defined slow stochastic indicator continues to signal losses after
since signaling a reversal in the pair earlier this week.
Written by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs.
Technical's, Intraday Trading, Weekly Spotlight, and Forex Trading
Weekly Forecast

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