Right now, the big excitement is the non-farm payrolls for January. Analysts had expected some gains for jobs, but the figures released beat expectations by quite a bit. The US economy added 243,000 jobs in January, and the unemployment rate fell from 8.5% to 8.3%. This state of affairs resulted in a great deal of enthusiasm for stocks.

Additionally, the US dollar saw a boost in Forex trading, especially when compared with the relatively insipid data coming out of Europe. Eurozone retail sales fell, and Great Britain continues to struggle with its economy. This has provided the US dollar with gains against the euro and the pound.

However, US dollar is paring some of its gains against European currencies as risk appetite increases and Forex traders look for higher yielding assets. US dollar has already begun its full-on retreat against the Canadian dollar.

At 16:17 GMT EUR/USD is at 1.3111, down from the open at 1.3145. GBP/USD is still lower as well, at 1.5790, off from the open at 1.5807. USD/CAD has retreated to 0.9954 from the open at 0.9992.

source form: topforexnews

Reports ahead of US non-farm payrolls provided a mixed picture about the US employment market as ADP employment report showed less-than-expected growth, while unemployment claims dropped more than was forecast. The payrolls came out today, supporting positive view on employment. US employers added 243,000 jobs in January, compared to the average forecast of 150,000. What’s more, the unemployment rate fell to 8.3 percent, while it was expected to stay at 8.5 percent.

Canada’s jobs market wasn’t near as good as US one. Employment registered almost no growth in January, showing an increase by just 2,300 jobs, compared to the expected figure of 23,300. The unemployment rate also provided an unpleasant surprise, rising to 7.6 percent, while forecasts said it would stay at the same 7.5 percent level as in the previous month.

USD/CAD was down from 0.9990 to 0.9946, reaching intraday 0.9939 — the lowest price since October 31, while EUR/CAD dropped from 1.3129 to 1.3036 (the lowest since January 19) and traded at about 1.3043 as of 16:40 GMT today. CAD/JPY rose from 76.24 to 76.88.

source form: topforexnews

US employment data overshadowed the problems of Europe for a day and provided a major boost for currencies tied to growth. The United States has its share of problems, but traders prefer to look at a brighter side of things in the USA as they have enough negativity from Europe. That may change in a time, but for now positive indicators and low interest rates make a good economic environment for riskier assets.

Commodity and stocks markets also reacted very positively to the US jobs growth, adding to appeal of the New Zealand currency. The Thomson Reuters/Jefferies CRB Index of commodities advanced 0.5 percent. The Standard & Poor’s 500 Index added as much as 1.3 percent.

NZD/USD closed at 0.8357 after opening at 0.8331 and reaching 0.8378 — the highest level since September 8. EUR/NZD closed at 1.5737 after it opened at 1.5764 and dropped to the all-time low of 1.5650. NZD/JPY closed at 63.92, following the advance from 63.47 to 64.11 — the highest since October 31.

source form: topforexnews

The US dollar started this week stronger against most of the currencies, but quickly turned to the downside as negative reports had begun to flow in. The Chicago Purchasing Managers’ Index and consumer confidence made a particularly nasty surpriseas they were expected to improve, not to worsen as actually happened. Housing data was also bad.

What turned the dollar back to the upside by the end of the week was employment data. At first, it looked that employment was also deteriorating as a report from Automatic Data Processing was worse than market analysts anticipated. Later, declining unemployment claims and robust growth of non-farm payrolls proved that the US job market is in quite a good shape. The positive data no only increased appeal of the US currency, but also reduced probability of a next round of quantitative easing, further strengthening the dollar.

EUR/USD opened at 1.3224, fell to 1.3026, but rebounded and stayed little changed, ending the week at 1.3158. USD/JPY dropped from 76.65 to 76.01 (the lowest since October 31), but jumped in Friday, almost erasing gains and closing at 76.57. USD/CHF was traded generally sideways, but rose over the week from 0.9118 to 0.9178. AUD/USD slipped from 1.0636 to 1.0526 on Monday, but later rallied without pause, reaching 1.0769 by the end of the week.

source form: topforexnews

Fundamental Forecast for the Euro: Bearish

This could be it. We’ve been saying that for months, as Euro-zone leaders play a dangerous game of chicken with Greek politicians and market participants, having brought us to the edge of imminent collapse multiple times in the second half of 2011 alone. Unlike other times, in which all actors appeared to have the same long-term goals, this viewing of the Greek drama looks to chart a new course – right out of the Euro-zone.

It’s been a far-fetched scenario to suggest that Greece may leave the Euro-zone altogether, as an orderly default seemed like the likely outcome. The script changed this past week, with tensions finally cracking in the Euro-zone’s core, while supranational European bodies struggle to find an answer in the Greek debt-swap impasse. After months of negotiations, and countless times of being told that we were within “hours” of a resolution, recent rhetoric suggests that a resolution may be a long ways away. The European Central Bank has publicly stated that it will not take a haircut on its Greek debt; Greek Prime Minister Lucas Papademos is reportedly threatening to step down over the negotiations; the European Troika has threatened to withhold any further bailout funds unless the debt-deal is completed and additional austerity measures are implemented; and German leadership has asked for control of Greek finances.

The situation is clearly a mess. Chatter across trade desks today suggested that a Greek default could occur as soon as this weekend, with an exit soon after. Markets have not priced this in considering the recent rally, and the exceptionally bullish U.S. labor market reading on Friday overshadowed these recent developments. In my opinion, market participants are vastly underestimating the notion of a Greek default; while a “Lehman Moment” may be off the table thanks to the ECB’s long-term refinancing operation (LTRO), the issue at hand is what will happen to sentiment. I remain highly skeptical that a Greek default would just be brushed aside; the ECB would need to be extra diligent to prevent other PIIGS’ bond yields from soaring on the threat of contagion. This is the most important item to keep in mind for the coming days.

In light of the recent optimism, and now the even more recent hesitation, the Euro has struggled this week to break the psychologically significant 1.3200 level against the U.S. Dollar. This level was key support in mid-December, and since then, the EUR/USD has failed to post consecutive closes above 1.3200 since then. This is our line in the sand for further advances by risk-correlated assets, specifically equity markets and periphery bonds.

With all of this in mind, the most important scheduled event for the Euro during the first full week of February is the ECB rate decision on Thursday. President Mario Draghi’s LTRO has saved the market from a major collapse, in my opinion, as it unclogged the increasingly frozen European interbank markets. Additionally, the ECB’s bond purchase program – one which Draghi has called “temporary by nature” – has helped quell concerns that Italian and Spanish 10-year bond yields would make a sustainable break above the 7.000 percent threshold, the yield at which Greece, Ireland, and Portugal asked for international assistance. With no rate cut expected, Draghi’s post-meeting conference becomes that more important, and could mark another decisive moment in the crisis amid the breakdown in the Greek debt-swap negotiations.

source form: dailyfx

Fundamental Forecast for the US Dollar: Neutral

There is little debating the greenback’s immediate trend. In approximately three weeks the Dow Jones FXCM Dollar Index has dropped nearly 360 points or 3.6 percent – a significant change in bearing from the start of the year when the benchmark was threatening to move on 12-month highs. Technically, the fundamental justification for a retreat is there. We have seen the Dow Jones Industrial Average lead a powerful swell in risk trends that won the index itself a close at four year highs. And, if risk trends are surging ahead; there is little to prevent the safe haven, low-yield dollar from faltering. However, what if we aren’t confident in this climb in optimism…

In reality, there are thousands of different elements that go into the fair value of a currency (such as housing sector health, availability of capital, consumption of raw materials, proclivity for stimulus or the outlook for interest rates amongst many more). Yet, luckily for us, there are generally only a few key drivers that have an overwhelming influence over the performance of a currency. The difficulty is in identifying those catalysts and assessing their influence. For the dollar, the fundamental cocktail contains: risk trends, the effort to diversify away from the euro and speculation of QE3.

If you run a rolling 20-day correlation between the benchmark US Dollar Index and the S&P 500, you’d see that the premiere safe haven and standard for blind risk appetite have a -0.87 connection. That is an exceptionally strong link that indicates they have moved in opposing directions and at the same level of intensity much of the time. Therefore, the S&P 500’s surge to a six-month high and the Dow’s close at a four-year summit spells out the situation pretty clearly. On the other hand, the fundamental drive itself (risk appetite) isn’t assured. Equities and prominent carry pairs have trended higher since the end of December. For the most recent, highly-publicized push, we were given an additional boost by the release of the January employment figures.

We should cast a critical eye on the durability of investor optimism and start with Friday’s employment figures. The readings of a 243,000 net increase in payrolls and three-year low in the jobless rate (at 8.3 percent) are met with many skeptics about the adjustments the BLS makes to this data (particularly how they account for those disgruntled Americans leaving the labor force). Yet, we don’t need to delve into a debate on this. What matters for price action is what the market considers market worthy (sensible or not). Even if we considered the labor statistics definitive, the January reading does little to deviate from the engrained trend (meaning this was largely priced in) and such a pace doesn’t do much to return the US to a state of ‘full employment’ through the foreseeable future. Furthermore, a steady – if lackluster – trend in labor health will curb the pressure for the much-sought-after QE3 that many have come to rely on.

Beyond the payrolls impact, we have questioned conviction in leveraging riskier positions for some time. Strong trends are defined by meaningful participation that solidifies levels already reached and keeps markets moving forward. That said, volume figures have never quiet metabolized in this move. It’s not difficult to understand why as fears of a global slowdown, fading yields and signs of financial strain in different areas of the world cast a dark cloud over the market. While it isn’t prudent to fight a prevailing trend, we should be aware than a low-volume advance can succumb to aggressive corrections should skeptics return in full force.

Another factor to consider at the start of the upcoming trading weak is what happens to the euro. Renewed fears that the Greek deal could fall through prevented the shared currency from taking higher Friday. This is an additional boon from the liquid dollar.

source form: dailyfx

Fundamental Forecast for Japanese Yen: Neutral

Just when Japanese Yen price action appeared to be regaining a sense of normalcy, the Eurozone debt crisis elbowed its way back into the picture. Leave it to Greece to muck up the works again. The Yen began to return to its long-term relationship with US Treasury yields this month as the Federal Reserve extended its projected period of “exceptionally low” interest rates by 18 months to the end of 2014 and ominously hinted it may launch a third round of quantitative easing (QE3), with USDJPY sinking dangerously close to the intervention-prone area around the 76.00 figure.

This made sense. The level of US yields has long served as a benchmark for returns on Dollar-denominated assets for Japanese investors who must perpetually decide what to do with a pile of USD left on their hands courtesy of the island nation’s trade surplus with America. When US yields rose, it made sense to recycle this surplus back into USD-based assets, driving USDJPY higher; when yields fell, the reverse was prudent, so it was quite reasonable to see USDJPY head south amid expectations that Ben Bernanke and company were preparing to ramp up asset purchases anew.

An unexpectedly robust US employment report seemingly cemented the relationship by showing it worked in reverse as well. Nonfarm payrolls crushed expectations, showing the US economy added 243,000 jobs in January compared with forecasts calling for a paltry 140,000 increase. While a long list of pundits commenced to squabble over the report’s validity after the release, the markets’ verdict was clear: the benchmark 10-year Treasury yield rose 116bps to mark the largest daily jump in over 6 weeks, hinting QE3 bets were being unwound and pulling USDJPY higher by a healthy 0.5 percent.

Holding out hope for more of the same appears ill-advised however amid reports that all three of the parties in Greece’s ruling coalition have rejected deeper austerity measures required to receive the next tranche of EU/IMF funding before €14.5 billion in maturing debt comes due on March 20. This makes the tense negotiations between Athens and its private creditors over a bond swap program meant to cut Greece’s debt burden and push out the due date on what remains further into the future effectively moot. Some reports suggest caretaker Prime Minister Lucas Papademos even resign over the dispute.

Needless to say, this lays the groundwork for a Greek default. In practice, that is not nearly as ominous of a prospect as it was even 2 months ago. The ECB has funneled close to half a trillion euro into the banks via its 3-year LTRO and has been dutifully buying other countries’ bonds, so the firewall against a massive credit crunch (especially given small the size of Greece’s economy) is arguably in place. That probably won’t prevent the markets from entering panic mode however, first as an initial knee-jerk reaction and later as traders extrapolate the Greek scenario to other, larger countries. The resulting bout of risk aversion is likely to spur safe-haven Yen buying once again, and with USDJPY still close to the 76.00 figure, bring intervention back into the picture to derail fundamentally-driven trend formation once again.

source form: dailyfx

Relative performance versus the USD Friday (as of 11:25GMT)

1. EUR +0.25%
2. CHF +0.24%
3. GBP +0.20%
4. CAD -0.01%
5. JPY -0.02%
6. AUD -0.13%
7. NZD -0.25%

Fundamentally, there are any number of catalysts on the horizon which could spark the next round of volatility. The ongoing Greek PSI talks are most probably at the forefront of investor minds and any clear resolution here will likely inspire a fresh round of Euro bids through the 1.3235 resistance. Conversely, a breakdown in talks which leads to the default of Greece, will likely open a bout of risk liquidation which will weigh on the Euro back below 1.3025. Another event on traders’ minds is today’s US NFP report. Overall, we have been seeing a steady recovery in US economic data, and a number which deviates far from expectation on either side, could very well open a wave of volatility which results in a break of the mentioned levels in the Euro.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: Although gains in this market have been quite impressive in recent days, the price action is still classified as corrective with the market locked in a broader underlying downtrend. From here we would still leave the door open for additional upside to test the 100-Day SMA by 1.3350, but any additional gains should be well capped below 1.3500 on a daily close basis in favor of the formation of the next major lower top ahead of bearish resumption. Ultimately we see risks for a move back below the 2012 lows at 1.2620 and towards the 1.2000 area over the coming months.

USD/JPY:The higher platform that we had been looking for by 76.55 has now been broken with the market eyeing a direct retest of the record lows from October at 75.55. Overall, we will still be looking for opportunities to be buyers on dips, with longer-term studies warning of a cycle low at some point over the coming months. Our strategy will be to wait for some oversold daily studies and then look to take another shot at the long side. A break back above 76.80 will be required at a minimum to relieve downside pressures.

GBP/USD: The latest break back above 1.5800 now compromises a multi-week consolidation, with the pair now looking to break towards next key resistance by 1.6000. However, despite the upside move, we see any additional gains from here as limited and would look for a topside failure somewhere ahead of 1.6000 in favor of a bearish resumption. Daily studies confirm and look stretched and selling rallies above 1.5900 over the coming sessions is the preferred strategy.

USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday consolidation before the next major upside extension beyond 0.9600 and towards parity. However, with the latest consolidative declines now finally testing the 100-Day SMA, any additional downside should be limited in favor of a fresh upside extension. Ultimately, only a daily close back below 0.9000 would give reason for concern. Alternatively, a close back above 0.9250 would alleviate immediate downside pressures and reaffirm outlook.

source form: dailyfx

Prepared by Jamie Saettele, CMT

It has been a range month for the GBPUSD between primarily 15400 and 15750. The drop to a monthly low yesterday sets sights on the October low at 15270. I wrote yesterday though to “respect potential for additional range action between the current level and the mentioned 15750. The current environment is not conducive to breakouts although that may change next week.” Cable has turned up and is nearing resistance from the 20 day average and former support at 15580. 15490 is support.

source form: dailyfx

Gold sharply fell on Thursday by 1.48% to $1,540.9; gold has fell for the past six consecutive business days; silver on the other hand slightly rose by 0.30% to reach $27.32. The chart below presents the development of gold and silver during December. During December gold decreased by 12% and silver by 16.7%.

The ratio between gold and silver slightly declined on Thursday, December 28th and reached 56.41. During the month the ratio gained 5.7% as gold has outperformed silver.

Despite the different directions of gold and silver recorded yesterday, their linear correlation between their daily percent changes continues to be high in December as it was in previous months.

U.S. Pending Home Sales Rose again in November 2011

According to the last U.S. pending homes sales report the market continues to rally as the pending home sales index rose by 7.3% in November. This servers as another indicators to the economic progress of the U.S. real estate markets and thus may have helped trade down precious metals.

U.S. Initial Claims Inclined Last Week

Yesterday, December 29th, according to the recent U.S. jobless claims report, the initial claims rose of 15,000 for the week ending on December 24th; the total initial claims reached 381,000 claims (seasonally adjusted data). This news may have affected the currency trading during yesterday and curbed the appreciation of the USD.

On Today’s Agenda

China Manufacturing PMI: this index will cover 800 companies in 20 industries in China; according to the HSBC Manufacturing PMI report regarding November the Manufacturing PMI continued to decline and reached 47.7 which is a 32 month low and sharply lower than the October index of 51.; this index indicates the changes in China’s manufacturing sectors growth rate (see here last China’s GDP report);

Forex / Gold & Silver– December

The Euro/USD slightly rose on Thursday by 15% to reach 1.2961. Furthermore, other exchange rates such as the AUD/USD also moderately rose. If major currencies will appreciate against the USD, it may also affect gold and silver to rise.

Gold and Silver Prices Outlook

Gold and silver didn’t do well in December and more so in the past several days. The recent U.S unemployment claims may have helped curb the recent appreciation of the USD and thus also curbed the sharp drop in gold and silver.

As we are existing 2011, unless the USD will trade down against other currencies such as the Euro, or a sharp move by speculators to correct the recent drop in gold, I speculate it is likely that bullion prices’ downward trend will continue.

source form: dailyfx