July Trading Overview & Current Opportunities

July Trading Overview

Job growth blew past expectations and the unemployment rate fell to the lowest level since before the financial crisis peaked six years ago, creating a firm foundation for a stronger U.S. economic expansion.

Payrolls rose by 288,000 workers following a 224,000 gain the prior month that was bigger than previously estimated and the unemployment rate fell to an almost six-year low of 6.1 percent, Labour Department figures showed in Washington. The 1.39 million increase in employment over the past six months is the biggest over a similar period since early 2006.

The biggest market moves surprisingly occurred on Thursday, not as expected on the Wednesday with the high impact FOMC meeting minutes. The euro snapped a three-day climb versus the dollar as missed debt payments of a Portuguese bank raised concern the region’s economy remains vulnerable to shocks as it emerges from the sovereign-debt crisis.

Japan’s currency advanced against all of its 16 major counterparts on investors’ demand for safer assets, and after the Federal Reserve’s minutes boosted speculation that U.S. interest rates will remain near zero this year. Australia’s dollar retreated from the highest in a week after the nation’s jobless rate climbed and imports by China grew slower than economists forecast. Stocks also fell and U.S. Treasuries gained.

U.S. stocks fell on Thursday, just after the Dow Jones Industrial Average closed at a record this week, as Ukraine said rebels shot down a passenger jet near its border with Russia.

The Standard & Poor’s 500 Index (SPX) fell, The Dow slipped and the yen strengthened across the board and to a five-month high against the euro after reports on the plane crash surfaced, boosting safe haven assets.

In other news this week, Federal Reserve Chair Janet Yellen told lawmakers the central bank must press on with record monetary stimulus to combat persistent job-market weakness.

“There are mixed signals concerning the economy,” Yellen said in response to questions during testimony to the Senate Banking Committee. “We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates.”

While her “overall view is more positive,” Yellen said low wages are one sign of “significant slack” in labour markets, even after the jobless rate fell to an almost six-year low.

Sterling fell from near two-year highs against the euro on Wednesday and struck a three-week low versus the dollar after minutes from this month’s Bank of England policy meeting were less hawkish than some in the market had anticipated.

The minutes showed that BoE officials discussed whether there was a case for an early interest rate rise, but there were concerns about hurting the recovery. The nine members of the Monetary Policy Committee voted unanimously to keep interest rates on hold, disappointing the market at the same time.

In addition, Thursday’s retail figure came in slightly lower than expected, fuelling further momentum to the downside.

The other big mover this week was the Kiwi. After four rate rises this year, the Reserve Bank of New Zealand looks set to hold the official interest rate (OCR) at 3.5 per cent for the rest of the year before moving again.

And the central bank’s warning that the high New Zealand dollar was “unjustified and unsustainable” and could fall significantly, proved true. The kiwi was thumped after the OCR announcement, falling by almost 100 pips against the US dollar, from 8700 to 8600, in a matter of minutes.

 The dollar posted its biggest monthly gain in more than a year as the four-week average of jobless claims, considered a less volatile measure than the weekly figure, dropped to 297,250, the lowest since April 2006, from 300,750 the prior week, the Labor Department reported.

U.S. employers added 231,000 workers in July and the jobless rate stayed at an almost six-year low of 6.1 percent, according to Bloomberg News surveys. In addition, in an very bullish week for the US, the world’s biggest economy expanded at a 4 percent annualized pace last quarter, after shrinking 2.1 percent in th

Current opportunities

Below are areas where we are looking for an opportunity for a trade, not exact levels to buy or sell. Price Action at the time can only dictate our approach.

USDJPY – Finally, having waiting almost 7 months for this pair to move, it looks like it has come back to life. We have seen the USD strengthen lately off the back of stellar data. The JPY is naturally weak due to the Q.E. being implemented in Japan. Therefore we have the likelihood for a potential move higher. Technically we are stuck at resistance around the 102.80/103.00 area. If we get a breakout we could look to trade the re-test of this level. It is a nice big round number, a solid horizontal level and will potentially coincide with a decent fib retracement overlapping. As always, this scenario needs to play out and we would need strong bullish price action to form at the time of the re-test. The trade would have a good 200 pip potential back to the big 105.00 if the USD continues to strengthen vs the weak JPY over the coming weeks and months.