Dollar Trading Lower Ahead of U.S. Jobs Data

The U.S. Dollar is trading lower ahead of this morning’s U.S. jobs data report.  Today’s Non-Farm Payrolls Report is expected a loss of about 175,000 jobs in October.  The key will be how investors react if the unemployment rate reaches or exceeds 10%.  Some say this figure is built into the market. 

The U.S. jobs report will set the tone for the day as it represents a way to gauge the health of the economy - namely consumer spending.  This year’s report carries a little more weight than previous reports because it will either back or refute the recent evidence that the economy has turned the corner.  Equity market traders are hoping for a good number ahead of this year’s holiday season. 

On Wednesday the U.S. Federal Reserve announced that it remained committed to its low interest policy for an “extended period.”  This statement can be interpreted by investors as a 30-day free ride in the market until the Fed meets again next month.  This means the possibility of a softer Dollar and greater demand for higher yielding assets. 

Yesterday the Bank of England announced that interest rates would remain at the historically low 0.50% level.  The BoE did increase its quantitative easing program by $41 billion.  This figure came within the range of expectations and triggered a rally in the GBP USD.  The main trend is up and the market is within striking distance of the October high at 1.6691.

The European Central Bank left interest rates unchanged at 1% while ECB President Trichet hinted at the central bank’s exit strategy.  Traders do not expect a rate hike soon but are expecting the ECB to begin withdrawing stimulus over the coming months.  Improving economic conditions in the Euro Zone are showing that stimulus measures are no longer warranted.

Traders are basing their expectations on the following statement by Trichet, [the ECB] “will make sure that the extraordinary liquidity measures taken are phased out in a timely and judicial fashion and that liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term.”

This upbeat assessment of the Euro Zone economy helped the Euro yesterday and is giving it additional support overnight. 

Technically, the EUR USD is sitting inside of the retracement zone created by the 1.5063 to 1.4625 range at 1.4873 to 1.4918.  Downtrending Gann angle resistance is at 1.4883.  A breakout to the upside could trigger a rally to 1.4973.  Support is at 1.4865 and 1.4745.

Please do not hesitate to contact us at 1-800-971-2440, with any questions. 

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