Expert Analysis of Today's Market

Dollar Rallies on Strong Labor Data

Hans Nilsson 2007-04-06

In thin trading on Good Friday, the dollar rallied against key currencies after strong US labor data reinforced the view that the Federal Reserve will not cut interest rates anytime soon as the strong labor market reduces the chance of a serious economic slowdown.

The EUR/USD reversed yesterday’s gain, currently testing support at the 1.3380 area. We sold one and bought one unit of the pair at 8:20 AM today, expecting a big move in either direction. The long position stopped out at 1.3370 and we now have a short position.

4_6_2007_IMG1

The EUR/JPY is at resistance and overbought. Despite carry trades’ attractiveness, we think a setback is likely. We move up our stop slightly.

4_6_2007_IMG2

Financial and Economic News and Comments

US & Canada

US non-farm payrolls unexpectedly jumped 180K in March, up from a revised 113K in February and 162K in January, the US Labor Department said. Those months were previously reported as increases of 97K and 146K, respectively.

4_6_2007_IMG3

The unemployment rate fell 0.1 percentage point to 4.4% in March, matching its lowest level since May 2001. This is important as there is usually rising unemployment ahead of a recession. As shown in the chart, the unemployment is trending down. The lower unemployment rate will make it unlikely for a Fed interest-rate cut. Average hourly earnings rose 6 cents, or 0.3% m/m, to $17.22, 4.0% y/y, suggesting wages remain an inflation risk.

4_6_2007_IMG4

Europe

Markets and government agencies were closed due to the Easter holiday.

Asia-Pacific

The US may file a complaint at the World Trade Organization as early as next week over what it calls China’s piracy of copyrighted movies and books, according to Bloomberg News.

Japan’s Finance Minister Koji Omi does not expect G-7 finance ministers and central bankers to discuss the yen’s weakness during the April 13 G-7 meeting in Washington. “I don’t think the yen will be a main agenda,” Omi said at a press conference in Tokyo.

FX Strategy Update

	EUR/USD	USD/JPY	GDP/USD	USD/CHF	USD/CAD	AUD/USD	EUR/JPY
Primary Trend:	Positive	Neutral	Neutral	Neutral	Positive	Positive	Positive
Secondary Trend:	Positive	Negative	Neutral	Negative	Negative	Positive	Negative
Trend Outlook:	Neutral	Neutral	Neutral	Negative	Neutral	Neutral	Neutral
Action:	Sell/buy	None	None	None	Buy	None	Sell
Current:	1.3368	119.33	1.9641	1.2217	1.1505	0.8153	159.51
Original Position:	1.3420	N/A	N/A	N/A	1.1666	N/A	155.86
Objective:	1.3135	N/A	N/A	N/A	1.1975	N/A	154.30
Stop:	1.3470	N/A	N/A	N/A	1.1365	N/A	160.35
Support	1.3250	118.00	1.9500	1.2100	1.1550	0.7900	158.00
	1.3080	116.50	1.9250	1.2000	1.1400	0.7700	157.00
Resistance	1.3450	119.80	1.9800	1.2320	1.1700	0.8180	160.00
	1.3565	121.80	2.0000	1.2450	1.2000	0.8250	162.00

2008
January | February | March | April

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