EURUSD UP

Consumer Confidence was better than expected rising to -25 from -28 revised. Economic Confidence rose to 73.3 from 70.2 (est. 71.0), Industrial Confidence rose to -32 from -33 and Service Confidence rose to -20 from -23. Each of the measures are off their lows reached earlier in the year. However, all remain below the higher levels reached over the last 4 or so years (see chart above).

The better data helped the EURUSD recover some of the earlier losses. The pair is currently testing the closing level from Friday at the 1.4069. The 61.8% of the move lower from Fridays high comes in 1.4065. The low reached overnight was 1.3983. The high was reached early in the trading day at the 1.4077 level. With a consolidating market, these levels become support and resistance levels.

EURUSD low

The EURUSD is lower this morning despite the better IFO data out of Germany this morning. The IFO Business Climate index came in at 85.9 vs expectations of 85.0 and up from 84.2. However, the pair was still pressured. There was a report that Germany’s budget shortfall might be larger than expectations (up to 100 Billion EUROS). The World Bank also accounced that global growth will shrink by -2.9% for 2009 vs their estimate of -1.7% in March. They also suggested that money would continue to flow out of the emerging countries. This would normally benefit the US dollar. Finally, this week the ECB has its annual funding operations.

The EURUSD tested the resistance at the 1.3888 level as per previous post and sold off to new lows on the day. However, the pair remains above the neckline of the head and shoulder formation which comes in at the 1.3809 level. A break of this level will likely lead to further selling pressure.

TRICHET

Trichet, known as a celeb around interest rate decisions took center stage on Thursday, releasing his economic outlook. The central bank left yet again their rates a 1%, but stated this time round that they intend to proceed with their 60 billion Euro plan to buy covered bonds on the first and secondary market. Following the decision the President mentioned that even though they do expect further contraction this year, it should be much less than the previous two quarters and the Euro-zone could see sparks of improvement during 2010. Trichet’s speech had a positive effect on the markets and the on the Euro, as the chairman stated that further aid will come to economy once economic data starts to show improvement and current policies leak through the system. The Euro also dropped last week closing with an average loss of -1.8%.

NFP Shock the Markets

When we were just starting to become accustomed to those large 500 numbers, the Bureau of Labor Statistics had to surprise and release an unbelievable change in employment figures.
As always, on the first Friday of each month, the major-market-mover is released showing how many new jobs were created or in our current situation, how many jobs were cut due to economic contraction. In addition the unemployment rate is released simultaneously to the NFP result, showing the percentage of the total labor force that is unemployed but actively seeking employment and willing to work in the US. Last week’s numbers shocked analysts, as the NFP result showed that during the month of May the employment rate had dropped by only 345k. Even though the unemployment rate didn’t show such an encouraging number climbing to a whopping 9.4%, the dramatic change in Non-farm Payrolls had a major impact on the markets increasing volatility during Friday’s session.

Where to Now?

From a fundamental and historical point of view, the markets should continue higher, especially due to Friday’s impressive NFP figure. Friday’s immediate reaction from stock traders was to drive the indices to higher ground. The result diverged by such an extent, from analyst expectations, that throughout the session stocks lost their steam as many questioned the surprisingly good report. On the Forex market the Dollar index saw a dramatic change, as the Dollar jumped against counterparts, the Dollar/Yen pair soared during Friday’s session climbing by over 200 pips. While it might seem strange that the Dollar increased against counterparts, especially as it has acted as a safe-haven over the last couple of months, recent movement came down to a combination of profit taking and higher U.S bond yields.

As mentioned above Friday’s numbers gave the markets a green light regarding the strength of the U.S economy. On one hand, currencies should continue on their normal path, which means that the GBP/USD, EUR/USD and USD/JPY could see higher ground in the long term. On the other hand, the Dollar could gain strength in the short term as investors are now rushing into the green back due to the following;

• 1. Traders are now pricing in a high chance of a rate hike, towards the end of the year- this is attracting foreign money into the Dollar.
• 2. Profit taking after Dollar counterparts presented an impressive rally.

The EURUSD backed off from the earlier highs caused by the the Russian/BRIC diversification out of the dollar chatter. The sell off was helped by the talk of a large seller at the top. This encouraged profit takers to enter the market. The correction back down took the pair to the 1.4211 level. From there, the EURUSD has bounced up to the high from yesterday at the 1.4246 level. The 100 week moving average is also near the level at the 1.4242 level. This level will be eyed as a key intraday level today.

The downside has the 1.4183 level as support and below that the close from yesterday at the 1.4158 level. As long as the price can stay below the 1.4246 level the price action should drift toward these levels.