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The US Payrolls Sink Below Forecast

A guest post written by DAR Wong

Currency Market Observations – 10 September 2012

Fundamental Outlook

The US payrolls drop below median forecast that spurs more speculation to stimulus plan. European Central Bank (ECB) hold on to interest rates unchanged but President Draghi announces unlimited bonds-buying program to indebted euro nations. China reveals new plan to build road construction as stimulus boost to market sentiments.

The US manufacturing shrank in August for third consecutive month when the Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009. On back to back, another report on services index by the same institution rose to 53.8 in August, the highest since April, from 49.3 in the prior month.

The weekly US jobless claims slid 12,000 to 365,000 in the week ended Sept 1, indicating jobs becoming stagnant. On Friday, monthly payrolls dropped in August beneath median forecast while more people left the workforce. The economy added 96,000 workers after a revised 141,000 increase in July and the unemployment slid to 8.1 percent. Despite the decline, stock markets rose and dollar weakened as more speculations expect stimulus to be injected soon as recently reiterated by FED Chairman Bernanke.

Manufacturing index in Eurozone was revised lower to 45.1 in August from the estimated 45.3 earlier. The largest economy German pulled up the euro sentiment again amid sluggishness. German exports, after seasonally adjusted, rose 0.5 percent in July vs. 1.4 percent drop in prior month while trade surplus narrowed to EUR16.9 billion (USD21 billion) in July from EUR18 billion in June.

On Thursday, ECB held the main interest rates unchanged at 0.75 percent. President Draghi announced his plan for unlimited bonds-buying program to bailout ailing nations. However, stringent conditionality and effective measures will be applied to borrowing countries. So far, Greece and Spain have not forwarded for such aid request.

Before the weekend, Chinese government announced plans to build 2,018 kilometers (1,254 miles) of roads, just 2 days after unveiling plans to build subways in 18 cities. The stimulus boost stated no exact budget yet but lifted the Shanghai Composite Index by 3.9 percent last week.

Technical Forecast

USD/JPY tumbled from 79.00 intra-week highs on Friday after wide speculation of imminent stimulus from US FED government. The market will face big challenge to test below 78.00 levels in coming week as resistance is building at 78.50 regions. The Japan’s leaders do not like to see a stronger yen that will hurt the exports but we presume yen will fall prey once dollar is prone to recede further due to US political interest. Breaking beneath 78.00 will probably meet the next support at 77.50 levels.

EUR/USD surged on Friday to 11-week record high and closed at the topside 1.2815 levels. This week, we reckon the trend will be resilient while gradually moving into sideways consolidation from 1.2750 – 1.2850 regions. We expect profit-taking around coming mid-week while the market might be pushed to the intra-week highs.

GBP/USD closed slightly above the major benchmarks at 1.6000 levels for the weekend. This week, we reckon the market will thread in bullish sentiment and might climb higher to 1.6100 areas before it goes sideways. The resistance will sit on 1.5930 levels but breaking below here needs abandon your long-view.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

Wong is the founder and Principal Consultant of PWForex.com and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

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