Most of these moves came on the back of a very busy economic calendar, which included the infamous labor data and the ISM reports. Having this in mind, it will be very interesting to observe how the market will react to the upcoming week, considering that we have four interest rate announcements and the Labor Day Holiday.

Monday: Labor Day
We expect: The Labor Day is usually seen as a quite day in the currency market. Most often, the major pairs just spend the day moving side-ways on this occasion.

Tuesday: Bank of Japan Interest Rate Meeting; Reserve Bank of Australia Interest Rate Meeting
We expect: The BoJ held a surprise interest rate meeting last week, and as a result nobody expects anything important to happen here. In our view, a major surprise will be if the central bank does not mention anything about the strength of the Jpy, something that will push the Usd/Jpy to fresh new 15-year lows.

The Reserve Bank of Australia is at the other end of the rope: the central bank is currently trying to fight inflationist pressures, rather than decade old deflation (see Bank of Japan). The RBA has already hiked 6 times over the last year, being the first major bank to start a rate-hiking cycle. However, almost no trader expects the RBA to rise for the seventh time now, considering the high level of uncertainty present in the market and in the global economy. At the previous meetings, the members of the RBA have expressed their concerns that Australia will have to suffer if the global economy goes back into recession.

Wednesday: Bank of Canada Interest Rate Meeting
We expect: The BoC had already lifted the Overnight Rate twice this year, and the market is currently pricing in the third interest rate hike. As we said with the RBA, we believe that the state of the global economy is a major impediment for the BoC.

Mark Carney, the Governor of the BoC, said at the last meeting that “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.” We think that the global economy has taken a turn to the worse since the last meeting, and this makes us ask if the BoC is prepared to rise again. In case the BoC fails to deliver the 0.25% expected raise, there will be a strong Cad sell-off, we reckon.

Thursday: Bank of England Interest Rate Meeting
We expect: It is very hard to believe that the BoE will raise any time soon, taking into account how strong the U.K. financial system was hit by the credit crisis. We are actually more interested to see if the Bank’s Monetary Policy Committee has changed its view on inflation:  the U.K. CPI is standing very high, but the bank keeps saying for a long period that inflation will fall due to the slack seen in the economy. In July 2010, inflation stood at 3.1% in the U.K., meaning that the bank actually pays a negative interest rate (something considered to be higly inflationary). We believe that the BoE interest rate meeting will pass unnoticed in the currency market.

Friday: Clear of anything that might move the market

This release together with the latest macroeconomic data confirms that the U.S. economy is moving away from the recovery path. Going beyond the -10K number, private employment for the goods production industry declined for the 41th consecutive month, something not that great especially when the U.S. economy is running a huge trade deficit. On the other hand, the service and manufacturing industries appear to be in better shape, but still very far from their 2007-2008 peaks.

As seen in the attached chart, the ADP and the NFP data went almost hand in hand during the recovery period. Conversely, things took a turn in February 2010 when the NFP data started outperforming the private employment report due to temporary hiring for the 2010 Census. Since most figures for the Census had already been collected, chances are that the largest part of these temporary contracts have already expired, adding more downside pressure on Friday’s NFP numbers.

Employment is the only sector of the U.S. economy that did not fell short over the last two months, but now it is showing signs of slowdown as well.  Unless the macroeconomic picture starts improving, the U.S. economy will be heading towards an L-shape recovery, rather than the V-shape that the market was hoping to see.

This might be very far away from now, but if the market starts pricing an L-shaped recovery, then the U.S. Dollar will thrive in this environment due to the uncertainty created in the market. The U.S. economy might be weaker than some of its counterparts – especially when compared to the Asian dragons – but risk-aversion will make Usd look as a very good buy, due to its reserve status.

• Several members emphasized that in addition to continuing to develop and test instruments to facilitate an eventual exit from the period of unusually accommodative monetary policy, the Committee would need to consider steps it could take to provide additional policy stimulus if the outlook were to weaken appreciably further.

These few lines will probably create some uncertainty in the market, because they practically say that there is no Quantitative Easing 2.0 on the line. The last two weeks were somehow wild in the market, with a lot of downside action that suddenly came to a halt when someone reminded of QE 2.0. On the other hand, here we have the Fed saying that things must get worse in order for a new round of cheap money to flow out of their printing press.

Speaking straightly from a monetary point of view, this was somehow expected. It is a known fact that monetary policy acts with lags, usually between 1-2 years, meaning that the effects of the previous round of QE had barely influence the real economy. One should also note that we are speaking here about extraordinary circumstances; there is very little empirical evidence about how quantitative easing strategies influence the real economy, meaning that the Fed together with the other central banks that embarked on this trip are walking on the thin line between the theoretical and applied economics. Up to the credit crisis, the Bank of Japan was the only central bank that had ever used Quantitative Easing, and for those who aren’t up to the subject, it was a big failure.

We see this as an important turning point for the S&P 500 index over the next few weeks. The economy is taking a turn to the worse, while the Fed has its hands tied at the back. How we said in some of our previous articles, we expect the S&P 500 index to break below the 1035.00 support area, with a possible target set in the 1.000 area. However, this outlook is highly dependable on how the ADP and NFP numbers will print later this week.

In the meantime, the Usd/Jpy is gathering momentum to push towards new 15-years lows as investors remain in a risk-aversion phase. Just over the last two days of trading, the pair lost 150 pips, at a time when the Bank of Japan is complaining about the strength of the Jpy. There is very little that the Bank of Japan can do to fight the Jpy strength, since they are practically alone against the entire market.

By a large distance, Tuesday’s FOMC minutes will be the most important. If the Fed sees again evidence that growth in the U.S. economy has slow down, a panic sell-off will probably hit the market. Chances for this outlook are quite high, considering the recent news releases.

The S&P 500 futures index recently bounced off the 1035.00 support area. This level has been holding the market during the prior week, but bearish FOMC minutes have the potential to turn this key support level into a strong resistance.

The outlook of the currency market isn’t that great either. The market had been constantly driven by risk-aversion over the last few weeks of trading, something that has lifted the volatility read. This is good for options buyers, but it is very bad for novice traders, which simply see their accounts being whipped due to strong moves out of nowhere.

Some traders might have noticed this, but the daily charts of the major pairs look very identical. Mainly, we are referring to the fact that all the major pairs are currently consolidating near the low touched during the prior week of trading. ForexChaser.com team reckons that a sell-off in the S&P 500 futures index following the FOMC minutes will have negative implications for the currency market as well. The team tends to favor Long Usd and Jpy plays these days, and this was clearly seen in the trading signals that we sent out recently.

The unscheduled meeting comes in a very difficult moment for the Bank of Japan: the Usd/Jpy is trading at the lowest value in 15 years despite numerous verbal interventions in the currency market, while the Japanese CPI is standing at the dangerous level of -0.9%.

The temporary solution proposed by the Bank of Japan was to increase the money available to the Japanese banking system, by extending the 3-month loan supply and adding a new 6-month loan program. To some extent, this is similar to the steps taken by the European Central Bank to fight the credit crisis, but on a smaller scale.

Most parts of the market were disappointed by the decisions taken by the BoJ. Expectations were that the central bank will increase the available funds to buy government bonds, or that the central bank will publicize direct interventions into the currency market. From our point of view the first option, to increase the purchase of government bonds, would have been an optimal decision for the Japanese economy, because it would put downside pressure on the local yields and on the Japanese yen.

Judging from the market’s reaction, we reckon that the Usd/Jpy exchange rate will continue the current downtrend until the Bank of Japan will take some serious steps in fighting the current recession. One should note that this might not come any time soon, since the Bank of Japan/Government appeared unable to take a sound decision even from the beginning of the credit crisis. Ever heard of “ The Lost Decade”, now it has become “The Two Lost Decades”

In the meantime, the actions taken today by the BoJ are just the start of Quantitative Easing part II, and not just for Japan, but for most major central banks. Mr. Bernanke, you are next on the line.

[ForexChaser.com]

Last trade, number IS-004 brought as many as 80 pips, but the second target was missed by only 15 pips.

Full details for the Short Aud/Usd signal can be found in the Free Forex Trading Signal page.

We are not born with such skills, they can only be learned the hard way in the market. Only hundreds and hundreds of screen time (if not more) can help a trader really understand what is behind his charts.

We often like to compare the ability to read the market with the ability to read people. Our subcontinent help us determine the mood of a know person very quickly by studying his or her tone, body posture, hand patterns, etc. However, this is almost impossible for an unknown person, because we simply do not know how that person reacts in different circumstances. Just spend some time with that unknown person, and in no time you will be able to tell when he or she is happy, sad or maybe when lying.

The same holds true in the financial market. Over time professional traders develop a six sense, which allows them to read the market and get out of trouble when something smells fishy. This is one of the most important skills for a professional trader from our point of view. This comes once with experience, and cannot be replaced by any indicator or black-box program. Once a trader builds this skill, he will know that he made a huge step forward.

[ForexChaser.com] We are looking to sell the Aud/Usd, once it hits the 0.8870 resistance area. The reason behind this move is that the price action on the daily and 4h charts looks increasingly bearish, at the same time as the S&P 500 futures reached the lowest value in a month. Take care, this a Sell Limit order.

Yesterday’s Eur/Usd short trade is currently 70 pips in profit, and it is heading towards its second target.

Full details for the Short Eur/Usd signal can be found in the Free Forex Trading Signal page.

[ForexChaser.com]

Full details for the Short Eur/Usd signal can be found in the Free Forex Trading Signal page.

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