Sep 05 2008
Nonfarm Payrolls On Tap
Yesterday, the greenback saw over 300 pips worth of gain against the EUR, as the cross dropped from a 1.4522 level at the beginning of the trading day, down to 1.4211 - making an 11 month low. The USD also continued its appreciation vs. the GBP; however this rally did not affect the USD\JPY pair, as the USD lost about 200 pips against the JPY.
The USD rose during yesterday’s session despite some concerning data that was published from the U.S. economy. The Automatic Data Processing has announced a 33K drop forecast for the NonFarm Payrolls. However, it appears that the market has limited its reaction to the survey as it has failed to accurately estimate the actual figures over the past few months. The Revised Non-Farm Productivity and the Unemployment Claims also pointed out that the U.S economy is far from fully recovering, as the unemployed individuals in the U.S. are consistently growing, currently measured at 444K. The only good news for the USD was the better- than- forecasted result on the Non-Manufacturing Purchasing Manager’s Index that showed that the non-manufacturing industry has slightly expanded during July.
In conclusion, two factors have joined together to strongly support the USD. The first one was the poor Euro-Zone data, which is continuing to prove that the most sustained global concerns are now coming from the European nations, and not from the U.S. The second factor is what is known as the “herd effect”. The current USD bullish trend appears to be so enduring that investors are seeing potential for unlimited profits and are so anxious to join the fest that they are becoming almost oblivious to the economic indicators. In this turn of events, only a major combination of unfortunate data from the U.S., along with a series of positive signals from the Euro-Zone, could initiate a long-lasting reversal for the EUR/USD pair.
As for today, at least for one trading session, everything is prone to change. Today is the first Friday of the month, and as such, the U.S NonFarm Payrolls will be announced at 12:30 GMT. Unlike yesterday’s data, this indicator will not be overlooked by investors. This is because it is a leading indicator of consumer spending, which accounts for a majority of overall economic activity, and also because it is published much earlier than the other leading indicators, and as so, investors often plan their weekly and monthly strategies based on this survey’s result. This is why an immediate reaction to this survey’s figures will take place. Analysts have forecasted a 73K drop in the number of employed people during July, and such a result is very likely to generate a bearish impact on USD pairs. However, in case of better- than- expected figures, the USD might extend its sharp bullish rally, and in its center, the EUR/USD might drop to levels around 1.4100.
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