Posted: 09 Jul 2010 04:01 AM PDT

Canadian unemployment rate fell to 7.9% and 93,200 jobs were gained. This huge surprise sends USD/CAD way down below the support line.

Early expectations saw the unemployment rate unchanged at 8.1%, as it didn’t change last month. Not only did it fall, but it dropped below the round number of 8%. And similar to the leap two months ago, the employment change figure showed a whopping gain of 93,2o0 jobs, more than 5 times the early expectations.

An immediate impact was seen on USD/CAD:

USD/CAD traded at 1.0420 before the release, and struggled with breaking below 1.04. The release sent the pair down to 1.0350, an instant fall of 70 pips, and the move is still on. The next line of support is 1.02, which was the 2009 low and also served as a strong line of support and resistance recently.

This is the sixth month of job gains in Canada, with the last two months being very strong:

Two months ago, Canada saw a huge leap in jobs – 108.7K, more than five times the early expectations. Not only that no correction was seen, last month’s figures also exceeded expectations with a rise of 24.7K jobs, better than 16.8K that was predicted.

The unemployment rate, that dropped to 8.1% two months ago, remained at this level also last month. Even with the recent drop in the American unemployment rate to 9.5%, the gap is still very significant.

Earlier this week, USD/CAD was still trading at a higher range, between the support line of 1.0550 and 1.0680. The loonie suffered from weak data, that kept the pair high. Canadian building permits dropped sharply by 10.8%. While this is always a volatile indicator, the drop was sharp and hurt the loonie.

Also the important Ivey PMI dropped from 62.7 to 58.9 points, when expectations stood on a rise. This added to the disappointment.

But later in the week, weak American figures sent the pair below 1.0550 and towards 1.04, which is a strong line of support, that the pair didn’t manage to break.

This isn’t the last Canadian figure this week – housing starts, which unexpectedly dropped to 189K last month, are predicted to recover and rise back up to 193K.

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GBP/USD Stuck in a Range – Will it Fall?

Posted: 09 Jul 2010 03:00 AM PDT

GBP/USD is trading in an almost perfect range in the past week. The longer the range – the stronger the explosion, but in which direction? Here are some reasons for it to go down.

Last Friday, GBP/USD enjoyed the weak Non-Farm Payrolls in the US to rise to new levels. Since then, it has traded in an almost perfect range – from 1.5080 to 1.5240. This 160 pip range saw three tops and three bottom throughout the week, without breaking out. But the situation doesn’t look good for the Pound:

Recent economic data is mostly negative. British Services PMI disappointed with a drop to 54.4 points, worse than expected. Halifax HPI, which shows the change in house prices, fell by 0.6% instead of rising by the same scale. Manufacturing Production fell short of expectations as it rose by only 0.3%, and last month’s drop was revised – 0.8% instead of 0.8% – double.

But the biggest disappointment came from interest rate issues. First, the Bank of England didn’t raise the rates. While this was the consensus, this came after we saw that one member voted to raise the rates last month – Andrew Sentance’s vote came on rising inflation that missed the government’s target month by month.

The decision not to raise the rates was later backed with the PPI figures – producer prices dropped last month by 0.2% when expectations stood on a rise of 0.1%. So, maybe the inflationary pressures aren’t too strong?

Similar to the Euro, it seems that the British Pound mostly enjoyed the US dollar’s weakness rather than its own strength. A drop will find immediate support at 1.5050, followed by 1.4870 and 1.4780. A breakout to the upside will meet resistance at 1.5350, followed by 1.5530 and 1.5833.

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Forex Daily Outlook – July 9 2010

Posted: 08 Jul 2010 02:00 PM PDT

Canada’s Employment change expecting a modest rise, Unemployment Rate without change and an increase in Housing Starts are the highlights of today’s activities. Here is an outlook for the final events of this trading week.

In the US, Wholesale Inventories expected to remain 0.4% for third consecutive month.

In Canada, Employment change expected to add 20.3K jobs in June – 4.4K less than in May and Unemployment Rate while the unemployment rate is forecasted to remain unchanged at 8.1%. However, recent Canadian employment reports have shown a tendency to surprise to the upside and another better-than-expected employment data from Canada could raise the odds for more rate hikes by the Bank of Canada and could provide a much-needed support for the CAD.

Later in Canada, Housing Starts slowed down and dropped to 189K last month, causing some worries. A rise to 194K is expected now and may have a positive effect on the CAD.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, French Industrial Production forecasted to rise 0.3% following the 0.3% dip in May indicating activity in the market while Italian Industrial Production expected a slight drop from 1.0% in May to 0.8%.

More in Europe, German Final CPI measuring the change in the price of goods and services purchased by consumer is foreseen to remain 1.0% as in April.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, The UK Input PPI surprised on the upside, falling to -0.6% in May from 0.6% in April, a positive difference on an expected fall to -0.9%. The Producer Price Index Input released by the National Statistics is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. A high reading in either is bullish for the GBP, while a low reading is taken as bearish. A welcome rise of 0.2% is expected now.

More in Great Britain, Trade Balance After the deficit rose to 7.5 billion pounds in April a decrease in deficit has occurred in May reaching 7.3B. Further deficit reduction to -7.1B is expected now.

Read more about the Pound in the GBP/USD forecast.

That’s it for today. Happy forex trading!

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EUR/USD Out of Air?

Posted: 08 Jul 2010 09:42 AM PDT

EUR/USD continued pushing forward and touched 1.27. At this point, it seems that the heights aren’t easy for the pair, that still carries debt issues and gloomy forecasts. Update on this pair.

Euro/Dollar continued the trend that began with the weak Non-Farm Payrolls on Friday and gradually edged up during the week – from the support line of 1.2460, it rose in waves and reached 1.2702, breaking 30 pips above the 1.2672 peak it reached on May 21, in the recovery rally that followed the turmoil.

So, at this point, the highest since the beginning of May, the pair seems exhausted. EUR/USD fell back down to 1.2660 after reaching the new highs. The break seems false and the next line of resistance, 1.2880 is out of reach. 1.2880 was a support line in May 2009.

Below 1.2460, support appears at 1.2330, 1.2250 and most importantly 1.2150. Above, 1.3110 is the next resistance line.

Reasons for Euro rally

The recent Euro rally came on top of weak economic figures in the US, and especially the Non-Farm Payrolls, that disappointed two months in a row. The sentiment is that the US economic recovery is much weaker than expected, meaning low interest rates for a very extended period of time. With a weak US economy, how can the dollar rise?

But there’s something else: the risk factor. The Euro didn’t rally on its own strength, but on US weakness. US weakness is global weakness, and this will eventually trigger risk aversive trading.

The situation in the Euro-zone isn’t good. The European teams might be good football / soccer, but their economies aren’t doing well.

Top economists say that the worst is yet to come:

Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto, said the euro will depreciate to $1.13 in the third quarter, $1.08 by year-end and may near $1 in 2011 before recovering. Osborne, whose predictions were within 4.1 percent of the mark on average, according to data compiled by Bloomberg, was echoed by the nine following most-accurate forecasters in anticipating a lower euro in the next two quarters.

When fear will return to the markets, the Euro will suffer. The dollar and the yen will rise. So, if you’re enjoying this current risk rally, you better watch out before the tables turn once again.

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