Key Levels Against the U.S. dollar
by Angelo Airaghi [Guest Analyst]
9/8/2009
The Federal Reserve and the European Central Bank should keep rates steady for the first part of 2010 as well, since the economic recovery remains fragile in some sectors and inflation is low. The Euro is once again at key resistance lines against the U.S. dollar. A breakout would possibly set the currency for a strong move up.
U.S.: Some improvements, but not enough
Growth remains weak in the United States, but sings of improvement are showing at various levels of the economy. Housing has clearly found a bottom, while consumer confidence has increased slightly in the recent months. For the first time since 20007, the ISM manufacturing survey moved up to 52.9 in August from 48.9 the previous month. New orders rose to 64.9 from 55.3, marking the strongest gain since 2004. The ISM services climbed instead to 48.4 from 46.4 in July. Nevertheless, the price paid component jumped to 63.1 from 41.3, thus anticipating some inflationary pressure ahead. The Federal Reserve is expected to keep rates accommodative the first part of 2010 as well, since the recovery is still very fragile and household savings weak.
In effect, after having topped in January of 2009 (-741,000), nonfarm payrolls declined 216,000 in August. The previous two months were revised down a cumulative of 49,000. The fall was broadly based with manufacturing and construction registering the heaviest losses. Since the financial crisis began, almost 7.0 million people have been out of work, the worst numbers of the past fifty-years. At the contrary, temporary job data continued to improve, eventually anticipating some stabilization in the job market over the medium term. Nonetheless, the short term picture stays critical. The unemployment rate is now 9.7% (a twenty-six year high) from 9.4% the previous month.
Europe: Unemployment increasing more?
The European Central Bank’s meeting of last week was once more a non-event. The ECB will keep rates low for now, albeit it will not postpone the 12-month long term refinancing operation after September 30th. Mr. Trichet was more positive about the economics’ outlook, although uncertainty remains very high. The European economy fell 0.1% in the second quarter, less than the U.S. decline, after having slumped 2.5% in the first three months of the year. The Gross Domestic Product (GDP) has been shrinking for five straight quarters in the Euro zone. Nonetheless, German and French GDP improved lately and they might increase more in the coming months. German incentive plan to workers has mitigated unemployment so far, although the decline should continue for the first part of 2010 as well.
Inflation stays mild for now, the PPI fell 0.8% in July, but it should again pick up sometimes next year. Commodity prices are expected to rise from the lows, as a better economic picture will increase demand for raw materials. The Purchasing Manger’s Index for the Euro zone reached a fourteen month’s high in August, despite remaining below the benchmark of 50 for the longest period in history. Improvements were broad-based with only Spain and Ireland staying behind. The PMI service rose instead to 49.9 from 45.7. In Germany, the index is now above 53.0 and pointing to expansion.
EUR/USD: Trying the resume the long-term uptrend.
EUR/USD: The Euro is again at crucial technical and seasonal levels. They are at the conjunction of various resistance points and will support the Euro to better prices, if broken. As result, a move above 1.4610 would target 1.48, 1.50. A breakout failure would instead take the price back again to 1.4050.
GBP/USD: The pound has found a good support at 1.61. It corresponds to the lower
Bollinger bands and the 100 MA. However, a move above 1.654 is necessary for 1.66, 1.67. A decline below 1.5990 would instead target 1.59, 1.57.
USD/JPY: The market is trading between 98.00 and 91.50. We are currently at the support line. A rebound to 93.80 is possible. Nevertheless, a move below 90.7 would target 90.00.
USD/CAD: The market has found a strong resistance at 1.11 and could now correct to 1.0830, eventually 1.0630, if it could move below 1.0695. A breakout failure would take the price to 1.0940 again.
In effect, after having topped in January of 2009 (-741,000), nonfarm payrolls declined 216,000 in August. The previous two months were revised down a cumulative of 49,000. The fall was broadly based with manufacturing and construction registering the heaviest losses. Since the financial crisis began, almost 7.0 million people have been out of work, the worst numbers of the past fifty-years. At the contrary, temporary job data continued to improve, eventually anticipating some stabilization in the job market over the medium term. Nonetheless, the short term picture stays critical. The unemployment rate is now 9.7% (a twenty-six year high) from 9.4% the previous month.
Europe: Unemployment increasing more?
The European Central Bank’s meeting of last week was once more a non-event. The ECB will keep rates low for now, albeit it will not postpone the 12-month long term refinancing operation after September 30th. Mr. Trichet was more positive about the economics’ outlook, although uncertainty remains very high. The European economy fell 0.1% in the second quarter, less than the U.S. decline, after having slumped 2.5% in the first three months of the year. The Gross Domestic Product (GDP) has been shrinking for five straight quarters in the Euro zone. Nonetheless, German and French GDP improved lately and they might increase more in the coming months. German incentive plan to workers has mitigated unemployment so far, although the decline should continue for the first part of 2010 as well.
Inflation stays mild for now, the PPI fell 0.8% in July, but it should again pick up sometimes next year. Commodity prices are expected to rise from the lows, as a better economic picture will increase demand for raw materials. The Purchasing Manger’s Index for the Euro zone reached a fourteen month’s high in August, despite remaining below the benchmark of 50 for the longest period in history. Improvements were broad-based with only Spain and Ireland staying behind. The PMI service rose instead to 49.9 from 45.7. In Germany, the index is now above 53.0 and pointing to expansion.
EUR/USD: Trying the resume the long-term uptrend.
EUR/USD: The Euro is again at crucial technical and seasonal levels. They are at the conjunction of various resistance points and will support the Euro to better prices, if broken. As result, a move above 1.4610 would target 1.48, 1.50. A breakout failure would instead take the price back again to 1.4050.
GBP/USD: The pound has found a good support at 1.61. It corresponds to the lower
Bollinger bands and the 100 MA. However, a move above 1.654 is necessary for 1.66, 1.67. A decline below 1.5990 would instead target 1.59, 1.57.
USD/JPY: The market is trading between 98.00 and 91.50. We are currently at the support line. A rebound to 93.80 is possible. Nevertheless, a move below 90.7 would target 90.00.
USD/CAD: The market has found a strong resistance at 1.11 and could now correct to 1.0830, eventually 1.0630, if it could move below 1.0695. A breakout failure would take the price to 1.0940 again.
Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.
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