The US dollar enters the week on a wounded knee after another disappointing non-farm payrolls highlighted the slowing employment situation in the US and the softening economic patch. On Friday, the greenback slumped across the board following a dismal September jobs report which only showed a net creation of 96K jobs vs. the expectated 150K as well as a slow-down in the average hourly earnings to 0.2% vs. the expected 0.3%. The report sheds light on the year’s remaining FOMC decisions and raises questions on whether a tightening is justified.

Following Monday’s Columbus Day, this week’s key data from the US include the trade balance on the Thursday and the retail sales reports on Friday. The trade balance is expected to show another above $50 billion figure, highlighting the US external imbalance, which could potentially extend the dollar’s damage. Germany’s ZEW survey is expected to show a slight weakness, but the recurring doubts over the US economy are likely to overshadow the German report.

On the geopolitical side, traders may look to the news of a peace initiative announced earlier on Saturday from Baghdad’s Sadr City by Iraq's interim government and the militia loyal to rebel cleric Muqtada al-Sadr. Under the agreement, al-Sadr's militia will hand over it’s heavy weapons during a five-day grace period beginning on Monday while the Iraqi-US security forces will conduct weapons searches in the area. In exchange, Iraq’s interim government has promised amnesty arrangements for people who "have not been involved in criminality” as well as potential involvement in the country's political developments leading up to the elections in January.

The news from Iraq, as well as the controversy involving the results of the elections in Afghanistan, may impact the oil prices, which continued rising this past week to the $53 mark. Post-hurricane slowdown in oil production in the Gulf, as well as the threat of the oil workers’ strike in Nigeria, however, do not bode well for any short-term recovery. On Friday, Fed Chairman Greenspan is scheduled to address the issues of rapidly rising oil prices from Washington.

Euro looks to build on last week’s strength

The euro looks to add to it’s Friday rise on the heels of the US jobs malaise report, opening the week at 1.2420 and looking to break last week’s highs of 1.2430’s en route to double-top of 1.2450. From that level, subsequent resistance is found at 1.2480 - the 61.8% retracement of the 1.2926-1.1759 decline. Tuesday’s ZEW report from Germany and Thursday’s trade balance will put the EUR/USD picture into clearer focus. Key support is found at $1.2215—the 38% retracement of the 1.2926-1.1759 move.

USDJPY trades up from Friday’s sharp lows

Following a move of nearly 200 points on Friday down to as low as 109.28, USD/JPY pair opens the week at 109.50. Key support is found near the 109.15 mark - 50% retracement level of the 114.86-103.50 move. Next support level is the 200 day MA at 109. Resistance is found at the 100-day MA at 109.90 followed by 110.50—the 38% retarcement of the 114.86-103.50 decline.

Primary question on traders’ minds will be how to reconcile the oil’s negative impact on the yen in the face of the recent damage to the USD/JPY. However, as we observed last week, the general tendency in the USD/JPY pattern has been to decline far more sharply than to rise.

Sterling stable after Friday’s 150 point rise

Cable opens the week on a slightly higher note from it’s Friday’s close of 1.7929 as it looks to continue last week’s upward turnaround from the 1.7744 low. Resistance is found at $1.8, followed by $1.8030—the trend line resistance extending from the1.8769 high thru the 1.8160 high. Initial support starts at 1.7870, followed by 1.7830 and 1.7750 levels.

Loonie on the move

Canadian currency continues to gather momentum against the dollar, as it aims for new USD/CAD lows with an opening drop from Friday’s close of 1.2520. Following last week’s move, the loonie is at a new 11 ½ year in a loud response to Friday’s report, showing strength in Canadian jobs, complemented by weakness in US jobs data. Support is found at 1.25, followed by 1.2465-70 and 1.24. Resistance remains at 1.2570 followed by 1.2620.

Aussie notches 5-month highs, incumbent Prime Minister Howard re-elected

Voters in Australia have rewarded the incumbent Prime Minister John Howard of the conservative coalition for leading the country to economic prosperity with a convincing fourth term re-election victory as well the control of the balance of both houses of Parliament. Aussie pushed up past the 73.80 mark to a new 5-month high on the cusp of the key resistance at 73.86—the 50% retracement of the 80.02-68.13 drop. Next resistance target is found at 74.30. Support starts at 73, followed by 72.40—38% retracement of the said move.

The US dollar slumped across the board after the much anticipated US jobs report showed a net creation of a dismal 96K in September, well below consensus expectations of 150K. August jobs were revised down to 128K from 144K. The unemployment rate remained steady at 5.4% but average hourly earnings slowed to an inflation-muted 0.2%. Aside from the evidence of economic deterioration, the report carries a political burden on the Bush Administration, which has lost a net 970,000 jobs since January 2001, the first time a US Administration has lost jobs since the Great Depression 75 years ago. Fore more details on the jobs report and the impact on the Fed and the dollar see our latest Article & Ideas on Forexnews.com.

Oil at contract highs, Gold at 6-month highs

The dollar wilted across the board, hitting 6-month lows against the Aussie and 11-year lows against the Canadian dollar. Aside from increased doubts regarding the fate of the Fed’s tightening cycle, the dollar is seen pressured on the foundation of slowing economic activity, especially from higher oil prices, which the Fed last deemed to have stabilized at last FOMC statement. The dollar damage fuelled gold prices by $6 to $423.70 per ounce, reaching its highest level since April 2.

The explosions in Egypt, Afghanistan made their stain on the geopolitical side and helped oil prices climb above the $53 per barrel mark. Bonds rallied significantly with the 10-year yield slumping from 4.25% to 4.13%. The combination of rallying bonds and soaring commodities suggests an ominous nearing towards stagflation. Indeed, the high unemployment rates typical of stagflation are inexistent but the number of people out of a job is sufficiently stark in weighing on consumption. Benign inflation happens to be a statistical impropriety than a reality.

Our prediction for a range of 80K- 95K jobs was based on the fact that: “ with the weight of rising weekly jobless claims and layoffs in September looming large. Estimates of hurricane-related job losses range from 50K-80K. The safe approach is to assume that the latest economic data have been consistent with this year’s average monthly payrolls creation of 180,000.”

Euro soars 1.5 cents to $1.2430s

The euro wasted no time in exploiting the poor US jobs report as it soared its way past the
$1.2350 target—the 50% retracement of the 1.2926-1.1759 decline and onto $1.2433. We continue to see $1.2380 as the interim resistance to any break out. With the US trade figures due next week expected above $50billion, we could see the euro escalating past the double top of $1.2450-55 and onto $1.2480. The 200-day MA remains as the key support followed by the $1.2215—the 38% retracement of the said move. A report showing the creation of more than 200K could pull the euro towards the $1.2150 target—the key foundation of the trend line extending from September 2003.

USDJPY posts its sharpest daily slide of the year

The Japanese currency soared nearly 2 yen, hitting a fresh 4-week high as yen shorts were violently unwound, leading to a multiple trigger of stops. The yen was already boosted in mid afternoon Asian trade when Japanese core machinery orders rose 3.1% in August from July, and up increased 5.4% from a year ago. The sharp rise drop is supported by the thesis mentioned in our earlier note that the USDJPY is more apt to mount faster moves on the downside than on the downside.

Support starts near the 109.16 target—the 50% retracement of the 114.86-103.50 drop, followed by the 200 day MA at 109. A drop below 108.70 sees key support at 108.20. Upside starts at the 100-day MA at 109.90. Subsequent bids follow at 110.50—the 38% retarcement of the 114.86-103.50 decline. Resistance follows at 111.50.

Sterling stabilizes

Cable rallied nearly 1.5 cents breaching the $1.7950 figure. Pressure seen at $1.8 followed by the $1.8030—the trend line resistance extending from the1.8769 high thru the 1.8160 high. Key resistance seen at 1.8110—the 38% retracement of the fall from the 1.8769 high to the 1.7706 low. Support starts at 1.7870, followed by 1.7830 and 1.7750.

Loonie soars to fresh 11 ½ year high

A dismal US jobs report and a strong showing in Canadian jobs helped generate another 11 ½ year high in the Canadian currency. Canada’s payrolls rose by 43K beating estimates of 20K following a 15K decline, which was revised from 7K. The strong report conveys Canada’s narrowing output gap, which paves the door for fresh highs. USDCAD downside seen at 1.25, followed by 1.2465-70 and 1,24. Upside stands at 1.2570 followed by 1.2620.

Aussie hits 6-month highs, ahead of election

Aussie pushed past its 72.90 200-day MA for the first time in 3 months to hit a 6-month high at 73.65. Despite the close race in Australia’s election, markets expect little changes in the Labour Party snatches victory from the incumbent Conservatives. Key resistance stands at 73.86—the 61.8% retracement of the 80.02-68.13 drop. Next target seen at 74.30. Support starts at 73, followed by 72.40—38% retracement of the said move. Subsequent foundation seen at 71.70.

At 7:00 AM Canada September Unemployment Rate (exp 7.2%, prev 7.2%) Canada September Change in Employment (exp 15k, prev –7k) At 8:30 AM US September Non-Farm Payrolls (exp 145k, prev 144k) US September Unemployment Rate (exp 5.4%, prev 5.4%) US September Average Hourly Earnings (exp 0.3%, prev 0.3%) At 10:00 AM US Fed Board Governor Bernanke Speaks (exp n/a, prev n/a) US Fed Vice Chairman Ferguson Speaks (exp n/a, prev n/a) At 9:00 PM Debate: Pres Bush vs Senator Kerry

The week culminates with the highly anticipated US September labor report, in which currency traders have been on edge about in previous months releases. Adding weight to today’s data is the fact that this employment report will be the last before the November US Presidential elections. Positive numbers will no doubt bolster President Bush’s candidacy for reelection, while a poor set will further blemish his administration’s economic track record.

The significance of the non-farm payrolls figure on markets cannot be understated, as it will also play a key role in determining whether additional Fed rate hikes may be imminent. Consensus forecasts expect a rise of 140K-50K jobs with the unemployment rate steady at 5.4% and average hourly earnings unchanged at 0.3%. We expect payrolls to come in between 80K and 95K, with the weight of rising weekly jobless claims and layoffs in September looming large. Estimates of hurricane-related job losses range from 50K-80K. The safe approach is to assume that the latest economic data have been consistent with this year’s average monthly payrolls creation of 180,000. Considering markets’ concern with the employment situation, we would expect that only a figure about 200K would generate a positive dollar response. We see the dollar coming under pressure in the event of a figure below 100K. Should also watch the string of revisions in previous months, which could also have secondary effect.

USDCAD Slips Ahead of Canadian Jobs

Preceding the release of the US report will be Canada’s September labor report. Markets are expecting unemployment rate to remain unchanged at 7.2% and an increase of 15k in employment, reversing August’s 7k drop. A larger than expected increase in the number of employed will provide further support for the Loonie.

Dollar/Cad trades around 1.26, with interim resistance seen at 1.2640, followed by 1.2665 and 1.27. Subsequent ceilings are seen at 1.2740, backed by 1.2770 and 1.28. Losses will support at 1.2570, backed by 1.2540 and 1.25. Additional floors are eyed at 1.2480, followed by 1.2430 and 1.24.

Euro Bounces Higher

The euro bounced higher against the dollar overnight, rising past the 1.23-handle but encountered offers near 1.2345-50. With traders taking to the sidelines ahead of the US payrolls report, EURUSD will likely trade within a 30-pip range prior to release.

EURUSD faces resistance at 1.2345-50, followed by 1.2380 and 1.24. Additional resistance is seen at 1.2430, key resistance at 1.2460, a previous high and 1.25. Support starts at 1.23, followed by 1.2280 and 1.2250. Subsequent floors are eyed at 1.2230, backed by 1.22 and 1.2160.

Cable Buoyed

Cable was bid up just shy of the 1.79-mark, but failed to garner sufficient momentum to advance further. Resistance is seen at 1.79, followed by 1.7930 and 1.7950. Subsequent ceilings will emerge at 1.80, followed by 1.8040 and 1.8065. Losses will encounter support at 1.7820, followed by 1.78 and 1.7760. Additional floors are seen at 1.7740, followed by 1.77 and 1.7675.

Yen Climbs on USD Weakness

The yen shrugged off record oil levels, and advanced versus the dollar overnight. The pair finds support at 110.30, followed by 110 and 109.70. Additional floors are eyed at 109.30, followed by 109 and 108.60. Resistance is seen at 111, followed by 111.50 and 112. Subsequent ceilings are seen at 112.40, followed by 112.75 and 113.

USDCHF

Dollar/Swiss teetered around the 1.26-mark. Gains in the pair will face interim resistance at 1.2640, followed by 1.2720 and 1.28. Subsequent ceilings are seen at 1.2860, followed by 1.2920 and 1.30.Support is seen at 1.2570 and 1.2510. Additional losses will target 1.2450 and 1.2370

The dollar ended softer today as traders unwound Thursday’s longs ahead of Friday’s closely watched US employment report. The importance of the report carries political dimensions since it is the last before the presidential election. Although both Democrats and Republicans will spin the report to their purposes, the report will not alter the fact the current administration has presided over a net loss of 1 million jobs. The last time the US saw a net loss of jobs in any administration was during the Great Depression of 70 years ago.

Meanwhile, oil prices remained on a tear, hitting a new record high above $52.50 per barrel. Applications for jobless claims fell by 37K to 335K last week, lower than the expected 350K reading. But the more stable 4-week average of jobless claims rose by 4.25K to 348K, hitting its highest level in 8 months. The report helped 10-year yields hit a 6-week high at 4.25%.

Bernanke Puzzled

Fed Chairman Greenspan gave no assessment on the economy in his speech today. Fed governor Ben Bernanke, however, had no qualms in expressing his inability to explain whey bond yields were on their way down at a time when the Fed was raising interest rates. Bernanke also discreetly indicated that a dollar decline would have to be part of a decline in the trade deficit. Bernanke did not use the word decline, but his inference was clear. He said: "I don't want to try to predict precisely how it will come about. But clearly changes in the dollar, the value of the dollar, and changes in interest rates" re al part of the market solution. Several Fed officials have indicated that a weaker dollar would be a important part of the solution to the current account deficit.

In its auction of 10-year Treasury Inflation Protection Securities (TIPS), the US Treasury raised $10 billion, in which it drew a cover/bid rate ratio of 2.44, well above the 2.05 average. Indirect bidders, a proxy for foreign central banks, were allocated 54% of the entire issue, better than the 44% average of the last 6 auctions.

Tomorrow’s Jobs report

All eyes turn to tomorrow’s September non-farm payrolls report from the US. Consensus forecasts expect a rise of 140K-50K jobs with the unemployment rate steady at 5.4% and average hourly earnings unchanged at 0.3%. We expect payrolls to come in between 80K and 95K, with the weight of rising weekly jobless claims and layoffs in September looming large. Estimates of hurricane-related job losses range from 50K-80K. The safe approach is to assume that the latest economic data have been consistent with this year’s average monthly payrolls creation of 180,000. Considering markets’ concern with the employment situation, we would expect that only a figure about 200K would generate a positive dollar response. We see the dollar coming under pressure in the event of a figure below 100K. Should also watch the string of revisions in previous months, which could also have secondary effect.

Euro crawls higher, vigilance unchanged at ECB

The euro ended a little an unchanged outlook by the European Central Bank at its Council meeting where it held rates unchanged at 2.0%. Bank pres Jean-Claude Trichet said there is no evidence of high oil prices pushing up other prices, assessing the medium-term inflation outlook to be “in line with price stability”. Trichet, however, reiterated that current inflation risks required "ongoing vigilance, thereby leaving the door open for a rate hike this year.

Interim resistance starts at $1.2330, followed by $1.2350—the 50% retracement of the 1.2926-1.1759 decline. We continue to see $1.2380 as the interim resistance to any break out. A payrolls report less than 50K could easily drive up the euro past the double top of $1.2450-55 into 1.2480. The 200-day MA remains as the key support followed by the $1.2215—the 38% retracement of the said move. A report showing the creation of more than 200K could pull the euro towards the $1.2150 target—the key foundation of the trend line extending from September 2003.

Sterling stabilizes

Cable broke a 4-day losing streak profiting from traders’ uwinding of dollar longs ahead of tomorrow’s jobs report. The currency briefly struggled after the Bank of England’s decision to hold rates steady. Upside starts at $1.7875, followed by $1.7930—the 50% retracement of the drop from the Sep 28 high. Support starts at $1.7750, followed by the $1.7710 support.

Yen up despite oil’s rise

The yen stopped its 4-day losing streak despite further runup in oil prices as dollar bulls eased their hands ahead of tomorrow’s crucial report. The evening’s key data from Japan will be August household spending due at 1.00 am NYT expected to fall 0.2% after a 1.1% rise.

Resistance starts at 111.50. Subsequent target comes up at 111.88—the 50% retracement of the 120.64-130.27 decline. Support starts at 110.59—the 50% retracement of the 112.46-108.73, backed by 110.05 -- the 100-day MA and the trend line support from the 103.40 low thru the 108.73 low. Subsequent losses seen stabilizing at 109.50 followed by the 200-day MA at 109.

Loonie stable ahead of Canadian jobs

The loonie stabilized at the 1.26 ahead of tomorrow’s twin employment reports from Canada and the US. Canada’s report is expected to show a 20K rise in September jobs following a 7K decline. Downside starts at 1.2570, followed by 1.2520. Upside capped at 1.2620, followed by 1.2660 and $1.2720.

Aussie at 2-month highs after jobs

Aussie pushed towards the 200-day MA for the first time in 2 months after Australian employment rose 19,000 following 3-monthly declines. Friday’s US jobs report could be the catalyst to a breach in the Aussie above the 73 cent figure in the event that payrolls come in less than 120-100K. Upside capped at the 200-day MA of 72.90, followed by 73.50 and 73/86—the 61.8% retracement of the 80.02-68.13 drop. Support starts at 72.40—38% retracement of the said move. Subsequent foundation seen at 71.70.

At 8:00 AM US Cleveland Fed President Pianalto Speaks (exp n/a, prev n/a) At 8:30 AM US Weekly Jobless Claims (exp 352k, prev 369k) At 9:30 AM US Fed Vice Chairman Ferguson Speaks (exp n/a, prev n/a) At 1:00 PM Bank of Canada Deputy Governor Kennedy Speaks (exp n/a, prev n/a) At 2:30 PM US Fed Chairman Greenspan Speaks (exp n/a, prev n/a) At 5:45 PM US Dallas Fed Chief McTeer Speaks (exp n/a, prev n/a)

Trading in the major currency pairs remained subdued overnight as all eyes turn to tomorrow’s key US September labor report. The dollar maintained its stronger footing against the sterling, holding it beneath the 1.78-level in London trading and keeping the yen at 111.40.

While today’s agenda offers little in the form of economic data, with only weekly jobless claims slated for release, there are several key speeches to make note of. The speakers include Cleveland Fed President Pianalto, Fed Vice Chairman Ferguson, Dallas Fed President McTeer, and most importantly, Fed Chairman Greenspan’s speech.

Also continuing to play a major role in currency moves is oil, which reached another record level above the $52 per barrel mark. The biggest casualty of further gains in oil will likely be the yen, which hovers just shy of multi-month lows against the dollar.

BoE Unchanged

The Bank of England, as expected, left its benchmark-lending rate unchanged at 4.75%. As customary with a no change decision, the Bank did not issue an accompanying statement.

Cable finds support at 1.7760, backed by 1.7740 and 1.77. Subsequent floors are eyed at 1.7675, followed by 1.7635 and 1.76. A move past 1.78 faces resistance at 1.7820, followed by 1.7870 and 1.79. Additional gains will target 1.7930, backed by 1.7950 and 1.80.

Euro Backs Away 1.23

The ECB announces its decision at 7:45 AM EST. While no change is expected either, traders will look ahead to the press conference at 8:30 AM EST. The euro was unable to sustain overnight gains above the 1.23-level, relinquishing to 1.2268. Support is seen at 1.2250, backed by 1.2230 and 1.22. Additional floors are eyed at 1.2160, backed by 1.2130 and 1.21. Interim resistance is eyed at 1.23, backed by 1.2340-50 and 1.2380. Subsequent ceilings are seen at 1.24, followed by 1.2430 and 1.2460.

Oil Continues to Weigh on Yen

Japan’s August leading indicator came in at 72.2, up from the previous month at 60.0. Meanwhile, the coincident indicator stood at 38.9 for August. Dollar/yen stood at the range as previous sessions, remaining buoyed above 111. Resistance is seen at 111.50, followed by 112 and 112.40. Additional ceilings will emerge at 112.75, followed by 113 and 113.30. Support begins at 111, backed by 110.60 and 110.30. Further losses will eye 110, followed by 109.70 and 109.30.

USDCHF

USDCHF traded within a narrow range overnight. Resistance is seen at 1.2660, backed by 1.27 and 1.2750. A move higher will target 1.28, followed by 1.2860 and 1.29. Losses encounter interim support at 1.2630, followed by 1.26 and 1.2550. Subsequent floors will emerge at 1.2510, followed by 1.2450 and 1.2370.

AUDUSD

Australia’s unemployment rate stood unchanged at 5.7%, while full-time employment rose 19,000. Meanwhile, the participation rate was up slightly to 63.6%

Interim resistance is seen at 0.7250 and 0.7285. Subsequent ceilings are seen at 0.7340, followed by 0.74 and 0.7450. Meanwhile, support will target 0.7140, backed by 0.71 and 0.7060. Subsequent floors are seen at 0.7020, backed by 0.70 and 0.6950.

USDCAD

Dollar/Cad was little changed, relinquishing earlier gains above the 1.26-level and drifting back lower. Resistance is seen at 1.2665, followed by 1.27 and 1.2740. Subsequent ceilings are eyed at 1.2770, followed by 1.2815 and 1.2850. Losses will find floors at 1.26, backed by 1.2540 and 1.25. Further losses will encounter subsequent support at 1.2480, backed by 1.2430 and 1.24.