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Market awaits unemployment data for signs of a meaningful recovery in the US

21 January, 2014

The USD last Friday enjoyed its strongest rally since November 2013, hitting 1.3508 in response to buoyant retail and consumer data indicating that the US economy is improving. This data has further boosted speculation that the US Federal Reserve will continue to reduce the economic stimulus, however policy makers will need to continue to monitor unemployment rates as they provide a more accurate measure of the strength of the recovery. While the market has had a quiet start to the week with a public holiday on Monday in the US for Martin Luther King Day, focus will return to the USD on Thursday when the latest unemployment claims data is released. If there are more people filing first-time claims for state unemployment insurance this will be a an indicator of weakness in the market which might cause USD weakness and encourage the Fed to hold off on reducing the stimulus further. The EUR/USD pivot point is 1.3725 and the next resistance levels are at 1.3926, 1.4095 and 1.4296, while the supports are 1.3556, 1.3355 and 1.3186.

The British pound also enjoyed a strong week against the euro, appreciating to 82.33, and GBP/USD traded between 1.6426 and 1.6424 at the end of last week. As the UK continues to show signs of economic growth the market is awaiting Wednesday’s UK Claimant Count Change. This data represents the number of unemployed people in the UK and an improvement in this number will further support rumours that Bank of England Governor Carney may consider raising interest rates. He has previously stated he won’t consider raising rates until unemployment drops to 7%, but with last month’s data showing a level of 7.3% a rate raise is a real possibility in the coming months. Wednesday will also see the release of the minutes from the December Bank of England Monetary Policy meeting which the market will be looking to for indications of future policy developments. The GBP/USD pivot point is 1.6453 and the next resistance levels are at 1.6686, 1.6813 and 1.7046, with supports at 1.6326, 1.6093 and 1.5966.

A quiet week is expected in the eurozone, with the only major data announcements being Germany’s ZEW Economic Sentiment and Manufacturing PMI from Germany and France. Last week’s European Central Bank report shows underlying price pressures in the euro area are expected to remain subdued over the medium term. Similarly, inflation expectations for the euro area over the medium to long term are firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to 2%.

On Monday, China’s GDP for the fourth quarter of 2013 was revealed to be 7.7%, slightly lower than the third quarter reading of 7.9% but still above analyst forecasts. This boosted the Australian dollar from its three year low and helped the Japanese yen to a slight rise. On Wednesday, Bank of Japan Governor Kuroda is expected to announce no change in interest rates, but the market will be looking to his press conference for indications on whether he intends to apply further monetary easing to the ailing economy. The USD/JPY pivot point is 104.11 with the next resistance levels at 106.59, 107.90 and 110.39 and with supports at 102.80, 100.32 and 99.01.

What to Watch this Week: GBP/USD is an interesting pair to watch this week as some volatility may be seen on Wednesday when the Bank of England Monetary Policy Committee meeting minutes are released. Other USD pairs may also show some volatility, particularly on Thursday when the latest unemployment claims data is released.

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