Macro Economic News Aiding Currency Market Technicals for 2012

By: Capital3X

RBA stood pat early this morning as it kept rates at 4.25% and AUD/USD reacted sharply up to 1.08 levels but was capped at the barrier at 1.08. We expect this level to be challenged.

China early on Friday decided to drain 26 bn yuan from the money market. These are all limiting factors in the risk rally of 2012 and unless you are looking carefully, you may miss these important triggers and on the downside, they will accelerate the falls. Markets unwind differently than when they go up.

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Further updates during the trading sessions today.

Two important Macro news has given new impetus to the bulls as it has torn and shred down traders who have been trying to short this market.

US employment picks up
The US labor market has strengthened significantly in January. Nonfarm-payrolls increased by 243k and the unemployment rate continued its downward drift, falling to 8.3%. Increased hiring should support private consumption, creating upside risks to our forecast of 2% economic growth in 2012. At the same time, the hurdle for QE3 has increased.

The previously published level for December was revised upward by 266k on the annual benchmark revision and other adjustments. The strong increase in January and the revisions have led to a much more encouraging picture of the labor market compared with the December report (chart) as hiring has clearly picked up. Job gains were broad-based across sectors with the usual exception of government employees (-14k).

Manufacturing added 50k jobs, underlining the strength of the sector. Part of the explanation why the increase in January surprised on the upside is that the BLS has revised its seasonal adjustment factors to better reflect the strong seasonality in the hiring of couriers and messengers. As this has eliminated the previously reported 42k increase in December, there was also no pullback in January, in contrast with expectations.

The unemployment rate which comes from a separate survey among households continued to surprise on the downside, slipping to 8.3% from 8.5%. Household employment increased by 847k in January, a massive rise even if about a quarter of the gain only reflects the updated population estimates. Thus, the unemployment rate is already drifting towards the lower end of the Fed’s forecast for the end of 2012 of 8.2% to 8.5%. Today’s report has therefore reduced the likelihood of further quantitative easing. However, with inflation under control and unemployment still elevated, the Fed may still feel under pressure to “do something” to fulfil its dual mandate of price stability and maximum employment. Moreover, given the very cautious view of the economy of the Fed in recent months, one excellent employment report will probably not be sufficient to convince the FOMC that the recovery has gained more speed.

German Orders gain traction

In December, German industrial companies received 1.7% more orders than in November. Against the backdrop of the steep drop in November and the figures released by the Mechanical Engineering Association, most economists had expected this countermovement. Orders increased sharply especially in the volatile sector of “other vehicles”.
After adjustment for this category, the increase amounted to only 0.2%. Looking at the order intake by regions, the rebound in demand largely came from outside the euro zone: orders from the euro-zone countries dropped by 6% month on month. Prospects for industry improved slightly in the last few weeks. According to the Ifo business climate and the purchasing managers’ index, companies have been more upbeat of late. The uncertainty surrounding the sovereign debt crisis has eased after the ECB’s three-year tender. In January, a majority of the companies polled in the Ifo survey reported rising order intake for the first time. For this reason it is likely that official order data will also point upwards in the months ahead, signalling a year-on-year increase (chart). The trend change in orders should start to have a beneficial effect on production in spring at the latest. Following a decline in German GDP in the fourth quarter by about ¼% on the third quarter, we expect to see the economy returning to a small growth rate in the first quarter

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Kate
Capital3x.com
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