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| Posted: 05 Jul 2009 01:23 AM PDT A Bump in the Road, or Signs Ranging Patterns Investors experienced another week of high volatility as the intraday sessions were affected tremendously by two major events. After last month’s impressive NFP result, showing a slowdown in job losses, Thursday’s figures showed investors a completely different story. Even though the unemployment rate climbed by only 0.1% to 9.5%, the NFP figure dropped by a whopping 467k in June, much higher than the 325,000 decline expected by analysts. Apart from General Motor’s contribution to last months layoffs, further U.S companies found it hard to keep employees, forcing them to cut their work force. From a line chart point of view, the NFP result is still showing a gloomy picture but has managed to distance itself dramatically from January’s lows, as certain sectors have shown mild improvement during the second quarter. Last’s weeks results showed that the current recession is far from over but didn’t indicate that the situation is getting worse. One must note that especially towards the beginning of a new economic cycle, employment levels can present extreme volatility, bouncing up and down, as companies hit by the recession’s impact continue to fault, while new ones start to employ. In addition, if we plot some technical analysis on the NFP chart it we can see that the figures are still above their prior lows. It will be interesting to see whether next month’s result will manage to present a higher-low, regaining investor’s confidence.
The European Central Bank also had an effect on the markets, as president Trichet released the bank's interest rate decision. The rate decision immediately had an impact on the currency market sending the Euro plummeting against its counterparts. Even though Trichet didn't surprise with any rate cuts, leaving the banks central rate at 1% he did end his speech on a pessimistic note, mentioning that further rate cuts could not be ruled out, due to recent economic activity showing declining prices. What's going on with the Charts? Up until the beginning of June, Dollar counter parts had presented phenomenal rallies, as sentiment had increased across the board. Over the last two weeks those trends have reached a stop sign, failing to climb higher. In addition when observing a few of the charts one can see that some are presenting reversal patterns. The S&P 500, which has acted as a gauge for the currency market has got stopped in its tracks as a lack of stimulating data has forced it into range. When observing the chart more carefully one can also see that the range is presenting a head & shoulders pattern Head & Shoulders pattern- consists of four distinct parts. The left should, the head, the right shoulder and the neck line. This type of pattern is typically known as a reversal pattern and is triggered when the price breaks the neckline.
On one hand the Head & Shoulders pattern is showing signs of a negative stock market, which could be bullish for the Dollar. On the other hand, critical support levels could hold the index afloat, preventing the Dollar from rallying. The latter situation could cause the major currencies to continue to range. A spark is required During the summer season trading volume tends to decrease as the market go into sleep mode or as most traders know it 'The summer Doldrums'. The major reason behind this is due to vacation time as individual investors let off some steam, taking a break from Wall Street's day to day action, while mutual funds do much less buying and selling of stocks. This type of situation can be very beneficial for currency traders as the lack of stock movement can often have a direct affect on the various pairs sending them into range. Even though the major pairs are failing to show signs of further strength, one must note that s drop to the down side could be limited especially if critical support levels hold. Traders that are still bullish on the markets, should be currently looking for a major spark, that will encourage further buyers into the market, especially as economic data seems to be having only an intraday affect, leaving the pairs around their current levels. This coming week The economic calendar is relatively light on data this week; therefore the results being released could have a limited affect on the market. However there will be interest rate decisions from Australia and the U.K. along with the G8 Summit in Italy beginning on Wednesday. The GBP/USD could receive some direction this week, especially if the Bank of England continues to show a pessimistic report, mentioning the use of further quantitative easing. Even though credit conditions are easing in England, the economic situation and outlook aren't promising. Furthermore, with a lack of global consumption, the U.K could encounter further problems down the road. In addition, the AUD/USD could receive some support from the RBA this week, as the Reserve Bank of Australia could yet again present a "no-change" status. Current data is showing a mild improvement in the economy and could prevent the RBA from taking any rash decisions. Technical Charts EUR/USD Daily Chart
GBP/USD Daily Chart
AUD/USD Daily Chart
*charts are courtesy of netdania.com
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