Sterling Could Rebound After Strong Retracement Conclusion

Pound Falls against Dollar, Euro as Bank of England Will Buy More Assets The pound fell for the first time in seven days against the dollar after the Bank of England said it will spend an additional 50 billion pounds of newly printed money to spur economic growth.

The dollar headed for a third weekly decline versus the euro, its longest run of losses this year, as a U.S. report may show employers cut jobs at a slower pace, sapping demand for the greenback as a refuge from the slump.

Trading Tactics

Buy GBP/USD on signs of a double bottom.

The buying point is at 1.5036; Pivot point is the take profit at 1.5165;

Fibonacci 61.8% is the stop loss at 1.4970

The selling point is at 1.4940; previous support is the take profit at 1.4835;

Fibonacci 50% is the stop loss at 1.5017

Technical: Sterling breaks previous resistance and continues its uptrend after a reversal pattern double bottom. A move back higher could set up a test of 1.5165

The following analysis is for information only; Finotec is not responsible for any decisions or misinterpretations based on the given text.

Finotec Group Inc.

Waiting On NFP

Market Brief

The Usd was weaker in the Asian session, as risk appetite firmed on the back of benign stress test results. The EurUsd traded down to 1.3342, before rallying to 1.4329, while the UsdJpy traded between 98.90 and 99.42. The highly anticipated results of the US Bank Stress Test failed to erode the markets growing optimism, even though 10 firms require almost $75bn in additional capital. The fact that the greater part of the results had previously been leaked gave markets some breathing space to price in the final results. In addition, Fed Chairman Bernanke said the results would give markets 'considerable comfort.'.Yesterday's Wall Stress session closed slightly lower, but Asian regional indexes are trading higher. In FX, risk seekers drove up commodity and EM currencies, with the AudUsd trading at 0.7571 and UsdRub trading at 32.5380. Gold longs continue to profit, as the precious metal sustains new price range above $910oz.

The inflation story builds credibility as commodities in the energy sector benefit from heightened risk appetite. Crude oil traded as high as $57bbl and a serious test at $60bbl would constitute a breakout, also bolstering the attractiveness of gold as hedge. Several major events had a substantial impact on market behavior today, two of which were the ECB and BoE meetings, and the last were the announcement of the stress test results. Investors are starting to see justification of the so-called 'green shoots.' The degree of transparency is comforting to Traders looking to capture the potential upside in a possible earlier than expected recovery. Gold can define a range between $850-$950oz over the long-term in either situation, meaning in an environment of increased risk aversion the price would hold steady and if markets stabilize we are likely to see a continued rally in the precious metal.

The RBA's quarterly statement on monetary policy contained significant downgrades to growth and inflation.. It also assumed that signs of growth in China , stabilization in Asia and the U.S. would prove durable. However, more rate cuts were signalled, but there is a clear reluctance to do so, as the RBA said further easing would be 'smaller, less frequent' and also dependent on the 'prospects for sustainable recovery'.

Ahead today, the employment report is expected to show a 600k decline in NFP, pushing the unemployment rate up to 8.9%. Initial jobless claims slipped to a monthly average of 637,000 in April from 658,000 in March. The better than expected ADP survey (showed just 491k jobs lost) will have the markets looking for a number to support the recovery story. however, correlations between the two series are small.

ACM FOREX

Dollar Might Tumble on Upside Surprise in Non-Farm Payroll

Moderating pace of recession has been the talk in the financial markets recently and all investors are looking forward to Friday's Non-Farm Payroll report for affirming this view. Economists expect the US job market to contract by another -620k in the month of Apr with unemployment rate jumping from 8.5% to 8.9%. However, recent economic data mostly point to a better reading. We'll discuss these 'leading' indicators and the possible impact of NFP to dollar below.

One of the most highly correlated indicators to NFP is indeed the employment components of the ISM indices. The employment component of ISM manufacturing index bottomed in Feb and had a very strong rise to 34.4 in Apr. On the other hand, the employment component of ISM non-manufacturing index bottomed at 31.1 last Nov. While there was some set back in March, the component did improve from 32.3 to 37 in Apr. While both were still in contraction region, the rise in Apr suggested that pace of contraction is slowing. Also, we may have seen the worst in job market contraction already and there should be some significant improvement, as implied by the indices in the near future, if not in Apr.

Conference Board Consumer Confidence is another indicator that's closely correlated with NFP as seen in the following chart. Consumer confidence bottomed at 25.3 in Feb and rose remarkably from 26.9 to 39.2 in Apr. The data also suggests that some strong improvement should be seen in NFP in Apr.

In addition, ADP report showed much less than expected contraction in the private sector by -491k only, best number since last October. Challenger layoffs rose by only 47%, least since last September. 4 Week average of initial jobless claims also fell by more than 14k.

Having said that, it's very likely that NFP will surprise on the upside this time with some chance to have the contraction improved to -400k to -500k level.

The dollar continues to be inversely correlated to stocks recently. Since April, Dow Jones Industrial Average has risen around 8.35%. On the other hand, dollar has depreciated over 9% against Australian dollar, over 7% against Canadian dollar and over 5% against Sterling. The greenback only managed to stay in tight range against Euro and Yen, which were both pressured by return of risk appetite.

Strong upside surprises in NFP will likely trigger extension in recent rally in stocks which in turn will trigger some sell off in the greenback. Among the major currencies, AUD and CAD will likely remain the ones to bet against dollar. Euro and Yen will be the ones to avoid in case of dollar weakness.

Source : Actionforex.com

US Dollar: US Non-Farm Payrolls (NFPs) Could Shake Majors From Key Levels

The US dollar has started May off on a weak note, trading just above key support versus many of the major currencies. However, US leading indicators for this Friday’s non-farm payrolls (NFPs) suggest the results could be rather optimistic, providing potential for further dollar declines as traders will opt to buy up risky, higher-yielding currencies.

What is the Market Expecting for April Non-Farm Payrolls?

Arguments for an Improvement In Non-Farm Payrolls

1. Initial jobless claims have gradually backed off from the March 27 high of 674K down to 601K
2. ADP employment change fell less than expected by 491,000, the least since October 2008.
3. Challenger job cuts rose by 47 percent from a year ago, the smallest increase since September 2008
4. ISM services, manufacturing employment indices are still well below 50, but both have improved slightly
5. Conference Board, University of Michigan consumer confidence both surged in April

Based on both a Bloomberg News poll of economists and a variety of leading indicators, Friday’s release of US non-farm payrolls (NFPs) is likely to show job losses for the sixteenth straight month in April, but the rate of decline is anticipated to slow. At the time of writing, Bloomberg News was calling for NFPs to plunge by 600,000, but looking at the range of estimates, economists are anticipating that NFPs could fall anywhere between 360,000 and 750,000. Based on the improvements we’ve seen in leading indicators like initial jobless claims, consumer confidence, and the employment components of ISM non-manufacturing and ISM manufacturing, we expect that NFPs may drop somewhere in the range of 500,000 to 600,000.

That said, the steady accumulation of job losses does not bode well for economic growth going forward and indicates that the unemployment rate will continue to climb. In fact, for the April reading of the rate is projected to rise to 8.9 percent, the highest since September 1983, from 8.5 percent. At the same time, initial estimates of Q1 GDP for the US showed a 2.2 percent jump in personal consumption, after spending contracted for the previous two quarters, suggesting that aggressive discounting by retailers has been able to counter the impact of falling incomes, to a certain degree. In coming months, it will be important to get a sense if the rising optimism amongst consumers – which has been focused more on the economic outlook than current conditions – can remain robust even if growth doesn’t bounce back in the second half of the year.

How Will the US Dollar React?

In preparation for trading this top event risk, we need to put it into the context of everything else that is going on in the markets since there is so much happening. This morning, the Bank of England announced that they were expanding their quantitative easing efforts, the European Central Bank cut rates to 1.00 percent and announced a 60 billion euro credit easing program, and at 17:00 ET tonight, the US government will release the official results of their stress tests on the 19 largest US financial institutions. Since the stress test news has potential to determine price trends for risky assets, including equities and FX carry trades, Friday’s price action may trade more on the sentiment stoked in response to the results rather than the release of NFPs.

From a technical perspective (see charts below), the daily charts of the US dollar index shows that the currency is going to face major support at the confluence of the 200 SMA and a rising trendline at 83.13. Meanwhile, shorter-term charts of EUR/USD (240-minute chart) show that the pair has had trouble pushing above 1.3400, and there is additional resistance looming at 1.3486 (200 SMA on daily charts) and the psychologically important 1.3500 mark. As a result, it will be important to watch how the US dollar responds to these pivotal levels, as a breakdown in the greenback would signal a significant bearish turn in the currency across the majors. On the other hand, a failure and subsequent retracement could indicate that the US dollar is due for a broad rebound.

Currencies And Equities At Important Technical Levels

The dollar traded mixed on Tuesday, higher against the euro but lower versus the pound. Federal Reserve Chairman Ben S. Bernanke said “a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.” The ISM US non-manufacturing index indicated the services sector contracted at a slower pace. The FX market and US stock market are at important technical levels. The greenback, testing support on improving risk sentiment, has not got any benefit from better US economic growth prospects as a massive increase in liquidity pressures the dollar. The US stock market fell modestly today consolidating earlier gains; the Dow declined 16 points to 8,411. The yen traded little changed. Sterling traded above 1.50 on the better-than-expected construction PMI and falling Libor rates indicating less stress in the global banking system. The AUD/USD rose to the highest level since October after the Reserve Bank of Australia held the cash rate target at 3.00%. The USD/CAD was little changed, near a 6-month low.

The EUR/USD fell following weaker-than-expected eurozone producer-price inflation increasing speculation the European Central Bank will cut interest rates aggressively. The EUR/USD has made a double bottom and broken its long-term downtrend. However, the pair hit resistance from the Bollinger band and there is further resistance from the 200-day moving average at the 1.35 handle. If this resistance is broken, the EUR/USD will turn more bullish. Support exists in the 1.30 area.

Financial and Economic News and Comments

US & Canada

• The ISM US non-manufacturing index increased more than expected to 43.7 in April from 40.8 in March, indicating the US services sector contracted at a slower pace in a sign the US recession is easing, data from the Institute for Supply Management showed. The key index components improved in April. The business activity index increased to 45.2 from March’s 44.1. The most encouraging sign in today’s ISM report was that the April new orders index jumped to 47.0, the highest level since September 2008, from 38.8 in March. The employment index rose to 37.0 from 32.3. The prices paid index increased to 40.0 from 39.1, signaling the threat of deflation is diminishing.
  

Europe

• Eurozone producer prices fell a slightly more-than-expected 0.7% m/m in March after an upwardly revised 0.4% m/m decline in February, according to PPI data from Eurostat. Producer prices fell a more-thananticipated 3.1 y/y, the largest decline since February 1987, following February’s upwardly revised 1.7% y/y fall. The core PPI, which excludes construction and energy, fell 0.4% m/m and 1.7 y/y in March. The falling PPI figures add to deflation concerns, supporting the case for a 25 basis-point rate cut to 1.00% by the European Central Bank this Thursday.
  

• The CIPS/Markit UK construction PMI climbed more than expected to a 7-month high of 38.1 in April from 30.9 in March, indicating UK construction contracted at a slower rate and signaling the UK recession is easing, according to data by Markit and the Chartered Institute of Purchasing and Supply.

Asia-Pacific

• The seasonally adjusted Australian AiG/Commonwealth Bank performance of services index for April increased to 39.8 from March’s downwardly revised 35.5, indicating Australia’s services sector contracted for a 13th consecutive month albeit at a slower pace, the Australian Industry Group and Commonwealth Bank reported.
• Australia’s building approvals rose for a second month in March, rising a more-than-anticipated 3.5% m/m, after an upwardly revised 8.0% m/m advance in February, according to data by the Australian Bureau of Statistics. Building approvals fell a less-than-expected 16.5 y/y, following February’s 25.5% y/y drop.
• The Reserve Bank of Australia maintained its benchmark interest rate at a 49-year low of 3.00%, as forecast, after a quarter-point rate reduction last month, the sixth cut in eight months. Government spending, lower borrowing costs and a pickup in China will drive an Australian economic recovery, RBA Governor Glenn Stevens said.
  

FX Strategy Update

	EUR/USD	USD/JPY	GBP/USD	USD/CHF	USD/CAD	AUD/USD	EUR/JPY
Primary Trend	Negative	Negative	Negative	Positive	Positive	Negative	Negative
Secondary Trend	Positive	Neutral	Neutral	Neutral	Negative	Positive	Positive
Outlook	Positive	Negative	Positive	Neutral	Negative	Positive	Positive
Action	Buy	Buy	Buy	None	None	Buy	None
Current	1.3338	98.90	1.5085	1.1347	1.1744	0.7425	131.90
Start Position	1.3149	96.42	1.4845	N/A	N/A	0.6601	N/A
Objective	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Stop	1.2840	93.40	1.4450	N/A	N/A	0.6950	N/A
Support	1.3000	97.00	1.4450	1.1100	1.1500	0.7200	128.00
	1.2500	95.00	1.4000	1.0700	1.1300	0.7000	125.00
Resistance	1.3500	99.50	1.5200	1.1700	1.2000	0.7500	134.00
	1.3700	101.00	1.5500	1.2000	1.2200	0.7900	136.00

Hans Nilsson
Capital Market Services, L.L.C.

Forex and Dow Jones Recommended Levels

EUR/USD

Today's support: - 1.3230(main), where correction is possible. Break would give 1.3208, where correction also may be. Then follows 1.3177. Break of the latter would result in 1.3160. If a strong impulse, we would see 1.3133. Continuation will give 1.3084.

Today's resistance: - 1.3297 and 1.3350(main). Break would give 1.3386, where a correction is possible. Then goes 1.3412. Break of the latter would result in 1.3433. If a strong impulse, we'd see 1.3467. Continuation will give 1.3489.

USD/JPY

Today's support: - 97.80 and 97.43(main). Break would bring 97.18, where correction is possible. Then 96.76, where a correction may also happen. Break of the latter will give 96.42. If a strong impulse, we would see 96.07. Continuation would give 95.86.

Today's resistance: - 98.44, 98.71 and 99.00(main), where a correction may happen. Break would bring 99.36, where also a correction may be. Then 99.70. If a strong impulse, we would see 99.90. Continuation will give 100.07.

DOW JONES INDEX

Today's support: - 8347.50 and 8322.20(main), where a delay and correction may happen. Break of the latter will give 8280.13, where correction also can be. Then follows 8246.30. Be there a strong impulse, we would see 8218.13. Continuation will bring 8194.62.

Today's resistance: - 8460.23(main), where a delay and correction may happen. Break would bring 8480.50, where a correction may happen. Then follows 8507.82, where a delay and correction could also be. Be there a strong impulse, we'd see 8528.90. Continuation would bring 8561.30 and 8606.22.

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