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The NFP came out much better than expected on Friday, ( May 2nd : Actual -20 vs Forecast -78 ). We have seen the appreciation of the USD. The EUR/USD has moved down to the 1.5400 region, while the USD/JPY has moved up to the 105.00 region. Will we keep seeing theUSD recover with confidence or are we half- believed in what we have seen?

This week has several explosive events. On schedule , we have Gearman factory orders, the central banks’ interest rate decisions and trade balances. It is worth noting that the Tokyo session is closed on May 5th due to a Bank Holiday ( Children’s Day ). Alright! Let’s review them all.

On Sunday ( May 4 ) we have the following events to watch:

There is no signigicat event on Sunday.

On Monday ( May 5th Bank Holiday in Japan ) we have the following events to watch:

In Australia, House Price Index ( Previous 3.2% ) is released at 01:30 GMT.
In New Zealand, ANZ Commodity Price Index ( Previous 2.0% ) is released at 02:00 GMT. There are no further significant events on Monday.

On Tuesday ( May 6th ) we have the following events to watch:

In Australia, Trade Balance ( Previous -3.29% ) is released at 01:30 GMT. Also, the RBA Intersest Rate Announcement ( Current 7.25% ) is scheduled at 04:30 GMT. Be aware AUD/USD traders.
In Switzerland, Consumer Price Index ( Previous -0.3 % ) is scheduled at 05:45 GMT.
In the Euro-Zone, Producer Price Index ( Previous 0.6% ) is an important event to watch.
In Canada, Building Permits ( Previous -1.0% ) and Ivey PMI ( Previous 59.0 ) are events to follow. Be aware USD/CAD traders.
In the UK, Consumer Price Index ( Previous 77 ) is scheduled at 23:01 GMT.

On Wednesday ( May 7th ) we have the following events to watch:

In the UK, Industrial Production ( Previous 0.3% ), Manufacturing Production ( Previous 0.4% ), and BRC Shop Price Index ( Previous 1.1% ) are notable events to watch. Also, NIESR GDP Estimate ( Previous 0.5% ) is an event to follow.This report that comes out a month before the official announce is highly reliable and can influence the UK monetary policy.
In the Euro-Zone, Retail Sales ( Previous -0.5 % ) is an event to follow.
In Germany, Factory Orders ( Previous -0.5% ) is released at 10:00 GMT.
In the US, Pending Home Sales ( Previous -1.9 % ) and Consumer Credit ( Previous 5.2B ) are events to monitor.
In New Zealand, Unemployment Rate ( Previous 3.4% ) is a notable event to watch. Be aware USD/NZD traders.

On Thursday ( May 8th ) we have the biggest day of the week with the following events:

In Australia, Unemployment Rate ( Previous 4.1% ) is scheduled at 01:30 GMT.
In Switzerland, Unemployment Rate ( Previous 2.5% ) is an event to follow.
In Germany, Trade Balance ( Previous 16.9B ) and Industrial Production ( Previous 0.4% ) are notable events to monitor.
In Euro-Zone, the BoE Interest Rate Statement ( Current 5.00% , at 11:00 GMT) and the ECB Interest Rate Announcement ( Current 4.00%, at 11:45 GMT ) are released in sequence. The president of the ECB Trichet will have a press conference after the release of interest rate at 12:30 GMT. We should keep our eyes open on how the ECB considers the recent value of the EUR and inflationary pressure in the Eurozone.
In the US, Unemployment Claims is scheduled at 12:30 GMT.

On Friday ( May 9th ) we have the 2nd biggetst day of the week with following events:

In Australia, RBA Monetary Policy Statement is scheduled at 01:30 GMT.
In Japan, Leading Index ( Previous 54.5% ) is released at 05:00 GMT.
In Canada, Unemployment Rate ( Previous 6.0% ) and Trade Balance ( Previous 4.9B ) are remarkable events to follow. Be aware USD/CAD traders.
In the US, Trade Balance ( Previous -62.3B ) is a notable event to watch.

April 2008 Employment Situation: Details More Pessimistic Than Headlines

Civilian Unemployment Rate: 5.0% in April vs. 5.1% in March

Payroll Employment: -20,000 in April vs. -81,000 in March, net loss of 8,000 jobs after revisions of payroll estimates for February and March.

Hourly earnings: +1 cent to $17.88, 3.4% yoy change vs. 3.65% yoy change in March; cycle high was 4.28% yoy change in Dec. 2006.

Household Survey – The civilian unemployment rate edged down to 5.0% during April from 5.1% in March. The jobless rate in April 2008 has increased one full percentage point from 4.5% a year ago. The small drop in the unemployment rate and smaller-than-expected loss in payroll jobs are misleading; the details present a labor market that is severely weak.

Moving on to the details, it is typical to find that part-time employment for economic reasons and marginally attached workers are increasing. The BLS identifies part-time employment as part-time employment for economic reasons if that is the only type of employment available or if weak business conditions lead to part-time employment. In April, part-time employment for economic reasons rose 20.6% from a year ago. Alternatively, this situation can be seen as an increase in part-time employment to 5.22 million vs. 4.37 million employees a year ago. The BLS also publishes information about marginally attached persons to the labor force. These folks are either discouraged workers or they want to work and are available but are not working and have looked for work in the recent past. If we sum the number of officially unemployed, the number of marginally attached workers, and the number of working part-time for economic reasons we obtain a more comprehensive measure of unemployment. This broader measure of unemployment rose to 9.2% in April (see chart 1) which is significantly higher than the 8.2% rate reported in April 2007.

Establishment Survey – Nonfarm payrolls fell 20,000 in April, after a loss of 81,000 jobs in March. Revisions of February and March employment estimates resulted in a loss of 8,000 more jobs. In the first four months of the year, payrolls have declined by 260,000. On a year-to-year basis, payroll employment increased only 0.3%, which is consistent with similar readings seen in prior recessions.

The BLS carries out adjustments every month to account for the creation and closing of new businesses every month because they are not included in the monthly survey. This birth/death adjustment process fails to take into consideration cyclical changes taking place in the labor market. The estimate of nonfarm payrolls appears to be an exaggeration because nonfarm payrolls fell 630,000 during the twelve months ended April when the birth/death adjustment is eliminated (see chart 3). If this adjustment is retained, private nonfarm payrolls actually increased 157,000 during the twelve months ended April.

Construction employment declined 61,000 in April, putting the total number of jobs lost since the peak in September 2006 at 457,600. Factory payrolls dropped 46,000 in April inclusive of a 17,000 loss in auto sector jobs. In addition, employment in furniture and related sectors fell 4,000 and there were 3,000 fewer semiconductors and electronics jobs. Factory employment has dropped 326,000 in the most recent 12-month period. Retail sector employment declined 27,000 in April. A total of 137,000 retail industry jobs have been lost from the peak in March 2007. The 37,000 increase in employment in the health care sector is the silver lining in this market. 365,000 jobs have been created in the health care industry in the past year.

The index of aggregate hours worked fell 0.4% in April, indicative of a contraction in GDP in the second quarter. The 1.2% decline in the factory man-hours index makes a strong case for a drop in industrial production in April.

Hourly earnings increased 1 cent to $17.88, putting the year-to-year change at 3.4%. The downward trend of hourly earnings is a source of relief for the doves on the FOMC who are facing dissents from the hawks focused on the upward trend of inflation.

The drop in payrolls and meager increase in earnings point to a steady wage and salary reading for April, at best; a decline in personal income in April should not be a surprise.

Conclusion – In addition to the weak employment numbers for April, real GDP advanced only 0.6% in the first quarter, final sales dropped 0.2%, the April ISM survey showed a stalled factory sector, and auto sales dropped to 14.4 million units in April, the weakest pace of sales since April 1995. (The sharp decline in auto sales in July and August of 1998 was related to a GM strike which led to a large reduction in inventories.)

Essentially, there is no doubt about the fundamentally feeble status of the U.S. economy. The Fed’s policy statement of April 30 and today’s actions to enhance liquidity in financial markets suggest that the Fed is most likely to pause and await the impact of the 325 basis point reduction in the federal funds rate, the economic stimulus package, and other programs put in place.

GBP
The pre-planned breakout variant for buyers has been realized with overlap of assumed target. OsMA trend indicator having marked the considerable rise of bullish activity at the break of boundary resistance range gives grounds to choose a variant of buyers’ planning priorities for today. Hence and because of descending direction of indicator chart, we assume a possibility of pair return to the nearest supports 1.9810/30, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For buyers’ positions on condition of formation of topping signals the targets will be 1.9880/1.9900 and/or further breakout variant up to 1.9960/80, 2.0020/40, 2.0080/2.0100. An alternative for sales will be below 1.9770 with the targets 1.9700/20, 1.9630/50, 1.9560/80.

JPY
The pre-planned breakout variant for buyers has been realized with attainment of minimal assumed target. OsMA trend indicator having marked the relative rise of parties’ activity with a preservation of their parity did not reveal the sufficient advantage of any party to make a definite choice of planning priorities for today. Hence and because of chosen strategy we assume a possibility of further range movement of the rate with a test of the nearest resistance range 104.10/20, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For short-term sales on condition of formation of topping signals the targets will be 103.50/70, 102.60/80 and/or further breakout variant up to 101.80/90, 101.00/20. An alternative for buyers will be above 104.40 with the targets 104.80/105.00, 105.50/70.

EUR
The assumed test of the key resistance range has been confirmed with conditions for realization of the pre-planned short positions. OsMA trend indicator having marked the considerable rise of buyers’ activity brings in some risk to a preservation of earlier opened short positions and the general situation of activity parity of both parties supports a possibility of further movement within the version of descending trading channel. For opened short positions the targets will be 1.5560/80, 1.5500/20 and/or further breakout variant up to 1.5440/60, 1.5380/1.5400, 1.5310/30. An alternative for buyers will be above 1.5720 with the targets 1.770/90, 1.5820/40.

In the exciting currency markets, the US dollar rose to a 3-week high against the Euro and a near 2-month high against the Japanese yen last week. You might be thinking, why did the US dollar gain in strength despite weak US economic data? We saw that consumer confidence is at 26-year low, the housing market is still in a sad decline and jobs are lost instead of being created. It might be tempting to think that perhaps traders are complacent about the dollar’s prospects but there are some factors which could be supporting the dollar’s favor for the immediate term. In the case of EUR/USD, long positions in the EUR/USD were reduced after EUR/USD failed to stay above 1.6000, and from a fundamental perspective, European data seems to be weaker now, as can be seen from last week’s IFO German business sentiment index which showed the biggest monthly decline since September 2001, and also there is an increased likelihood of a Fed pause after a possible 25-bp rate cut this coming Thursday. The futures market is even pricing a 30% chance that the Fed will keep the benchmark rate unchanged at 2.25%, compared with a 2% chance a week ago. There will be many major events happening this week although there is nothing major scheduled for Monday. Look out for US GDP, manufacturing, Fed rate announcement and non-farm payrolls data in the later part of the week.

Forex Trading

If you want to dodge these event risks, intraday trading will be your best weapon. EUR/USD’s nearest resistance lies around 1.5720, and nearest support is around 1.5530-50, with another possible support cushion around 1.5480-1.5510. USD/CHF’s resistance is around 1.0430, followed by 1.0460 then 1.0500.

Sunday:

• Japan retail trade 2350 GMT

Monday:

• ECB’s Trichet, Liebscher, Wellink speak in Vienna 0700 GMT
• European Commission releases economic growth forecast 0945 GMT
• New Zealand trade balance 2245 GMT

The signs that the dollar may have reached the bottom add up. However, we are waiting suspensefully for the U.S. GDP figures for the second quarter and the FOMC interest rate decision, which are to be announced this coming Wednesday, to get a clearer picture and confirmation. Until then, like today, some light upwards movements of the USD seem to be the likeliest scenario.

Intraday Market Outlook for Day Traders

EUR / USD
Currently trading at 1.5658, the EUR / USD is struggling to recover some of its losses. These efforts could find resistance at 1.5700, where we expect the downtrend to resume. Sell at 1.5700, with a target of 1.5560 and a stop at 1.5720. See chart below.

GBP / USD
After a steep drop in early European trading, the GBP / USD is also attempting to recover and is currently trading at 1.9870. We expect this recovery to continue meeting resistance only at 1.9950, where at least a consolidation could set in. Those traders who prefer the GBP / USD pair, as opposed to the EUR / USD pair (our recommendation), may establish short positions at this resistance level.

USD / CHF
After saying goodby to its old lower trading range, a new USD / CHF trading range is in the process of being formed, with the lower end at 1.0270 and the upper end at 1.0400. Currently trading near the lower end, at 1.0317, due to its oversold position, further upmoves are the most likely outcome for today. Nevertheless, we have no specific recommendation for today.

USD / JPY
Decision time for the USD / JPY: The constructive saucer pattern is now completed and waiting for its bullish confirmation, i.e. an outbreak over the 104.80 level. Currently trading at 104.42, we would like to see this outbreak first before we would consider any long positions. See chart below.

EUR / USD Chart

USD / JPY Chart

SYDNEY (Thomson Financial) - The U.S. dollar was trading mixed late morning on Monday in a narrow range after firming on Friday as opinion grew that the Federal Reserve might pause in its easing cycle after an expected quarter percentage point cut in the central bank’s target funds rate this week.

At 11:30 a.m. (0130 GMT) the euro was at $1.5633, up from $1.5620 in late New York trade on Friday. The dollar was at 104.72 yen, up from 104.40 yen.

The Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday to decide whether to lower interest rates again. It will also issue an updated assessment of the U.S. economy and financial system.

Most investors believe the Fed will lower rates by another quarter percentage point but will also suggest it is gearing up for a pause.

Already, the central bank has incrementally reduced the key federal funds rate by 3 percentage points since last August to 2.25 percent from 5.25 percent. On top of rate cuts, the Fed has been lending more money to banks, while the government is preparing to send out tax rebates.

NAB Capital Markets chief economist Rob Henderson said he expects the FOMC to cut the funds target rate to 2.00 percent.

Despite expectations that the FOMC will then be finished with rate-cutting, Henderson said the market will first have to contend with more bad news on the data front.

He said advanced first quarter gross domestic product (GDP) data due out on Wednesday is forecast to show growth of just 0.3 percent annualised growth though the result could be negative.

On Thursday the April ISM Manufacturing index is expected to fall a touch further to 48.3 while on Friday April non-farm payrolls data is likely to show another up-tick in the unemployment rate to 5.2 percent from 5.1 percent in March and a fall in jobs of 75,000, a slight improvement on the 80,000 jobs lost in March.

On the positive side, tax rebates of $330 to $1,200 per individual are due to be posted on Monday, forming the centrepiece of the federal government’s $168 billion fiscal stimulus package.

Meanwhile, the Bank of Japan is not expected to change its policy rate from 0.5 percent after Wednesday’s policymakers’ meeting though data showing a rise in core inflation was likely to put more focus on the meeting, Henderson said.

John Noonan, a senior foreign exchange analyst at Thomson IFR, said the direction of the foreign exchange market this week would largely be determined by scheduled events.

"The FOMC meeting promises to be a major event in that it is expected to signal the end of the dramatic easing cycle the Fed has been on since the credit crisis stormed through," said Noonan.

He said there was a lot of new-found optimism on Wall Street with many saying that the end is near for the U.S. moving into recession, though this view would be severely tested later in the week when the payroll data is released.

Sydney 11:30 a.m. (0130 GMT)

U.S. dollar

yen 104.72 yen

Swiss franc 1.0349

Euro

U.S. dollar 1.5633

yen 163.670

Swiss franc 1.6181

pound 0.78886

Pound

U.S. dollar 1.9824

yen 207.563

Swiss franc 2.0511

Australian dollar

U.S. dollar 0.9352

pound 0.4718

yen 97.915

New Zealand dollar

U.S. dollar 0.7841

bruce.hextall@thomsonreuters.com