After the absolute certainty of yesterday’s UK and European Central Bank rate announcements which have been pretty much predictable for over the last 12 months the market is now looking to today’s US payrolls data which could well have a big effect on dollar direction over the next few days, especially with next weeks FOMC meeting in the offing and Bernanke’s warning of “unusual uncertainty” still resonating around the market.

Yesterday’s surprise rise in weekly jobless figures to their highest level of since April may not be relevant in terms of today’s data, but symbolically it doesn’t reassure that the figures later today will give the markets the positive boost they will need to push spread betting equities markets and the US dollar higher away from its recent three month lows.

Certainly a poor number today will intensify market perceptions that the Federal Reserve will look to introduce further stimulus measures next week at its next policy meeting, keeping continued downward pressure on US Libor rates, with 3 month dollar Libor falling for the 17th successive day yesterday.

Expectations are for a rise to 9.6% in the unemployment rate and for a loss of 65k jobs in July.

As well as the US payrolls data the UK has some important data out today in the form of industrial and manufacturing production for June, which are expected to show increases of 0.4% in both cases, as well as July producer price data which is likely to show that output prices rose by just 0.1% month-on-month, after falling 0.3% in June. This would cause the annual rate of increase to ease to 5.0% in July from 5.1% in June and a peak of 5.9% in May.

Elsewhere in the currency spread betting arena, Sterling has enjoyed some good gains of late but the sterling index is showing some signs of fragility and failing momentum having failed to breach the June highs of 82.54. Some positive UK numbers could well give the waning momentum the extra spur it needs to make new 11 month highs, while disappointment in the numbers could prompt a correction lower.

EURUSD – the euro continues to range between the weeks high at 1.3265 and the previous resistance and 38.2% Fibonacci level at 1.3125. The move to 1.3510, the 50% retracement area remains a possibility while above this level.

There is also interim rising trend line support from the 1st July lows at 1.2190/00 which now comes in just above the same level of 1.3125, so we now have a confluence of support coming in around these lows.

A break below 1.3120 could see some unwinding of stops towards support around the 1.2950 level, a break of which would open a test towards the 1.2840/50 level.

GBPUSD – a sharp push below the 1.5860/70 61.8% Fibonacci support area triggered stops down to 1.5820 before rebounding yesterday. Momentum appears to be waning in the short term after the highs of 1.5970 early this week. A break below yesterdays lows around 1.5810/20 could trigger a deeper correction towards the 1.5520/50 area.

Long term rising trend line support levels, remain around the 1.5420/30 area, from the June lows at 1.4350.

The 3rd February highs at 1.6070 remains the short term target while above 1.5810.

EURGBP – it’s pretty much as you were on the cross here, though the lack of downside follow through is a concern. While the euro continues to hold below the 0.8315/20 neckline it should remain on target to test the 0.8245 61.8% retracement level of the up move from 0.8065 to the 0.8520 double top. While it stays below the old neckline support around the 0.8315/20 level the euro should head towards the 0.8245 level and back towards the lows at 0.8070.

A break and close above 0.8315/20 re-targets 0.8410.

USDJPY – yesterday’s sharp rebound spilled over 86.25 losing momentum quite quickly, peaking at 86.45 before reversing. Unless the dollar recovers the 87.00 level the downside scenario remains intact. A weak payrolls figure would keep the pressure on the downside here.

The key support remains around last years lows at 84.80, a break of which would then look to target the 1995 lows below 80.00.

By James Hughes, Market Analyst, CMC Markets.

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