Posted: 17 Feb 2010 01:39 AM PST

The turnaround in the British job market is in doubt, similar to the economy’s growth. The number of unemployed Brits leaped, hurting the Pound’s cautious recovery. Let’s see the numbers:

British Claimant Count Change, which is an early and important indicator of employment, showed a big rise in the number of unemployed people – 23,400. This erases the achievements of the past two months – drops of 15,200 and 10,800. It was also a bitter disappointment.

This was totally unexpected. Early predictions stood on another month of drops – 14,600. British Unemployment Rate, a late figure that relates to December remained stable at 7.8% – exactly as expected.

GBP/USD falls modestly after this release. Note that the MPC Meeting Minutes were released at the same time and they might have an offset the effect. British policymakers voted unanimously to stop the Quantitative Easing program. King didn’t out renewing it in the future.

Earlier in the week, British inflation rose to an annual level of 3.5%. Although this was marginally below expectations of 3.6%, this was sure above the government’s target of 1-3%. This would normally send the Pound shooting up on high expectations for a rate hike. Indeed, the central bank had to lay out the measures: Mervyn King was forced to write a letter to explain the reasons for this outcome and the measures taken.

But King continued his previous stance that this rise is only temporary, blaming the rise on the government’s higher VAT and the jump in fuel prices. He said that the bank is closely monitoring the situation but didn’t commit to any rate hikes in the near future.

The Pound did manage to rise though – riding on the dollar’s weakness rather than its own strength. The markets are tired of hearing about the Greek crisis – risk appetite returned. Stocks went up all over the world and the dollar was sold in favor of ”risky” currencies.

Although the Pound isn’t a high yielding currency, the dollar’s weakness was seen also in GBP/USD, and the Pound breached 1.5770 and peaked at 1.5814 a few hours before the release.

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Decade Low for EUR/AUD

Posted: 16 Feb 2010 02:40 PM PST

It’s quite a rarity to see a pair trade at levels last seen in 2000. EUR/AUD has this honor. The breach of a technical barrier reflects the fundamentals perfectly.

EUR/AUD is now trading at 1.5268 bouncing off the a bottom of 1.5188 earlier. These numbers don’t mean too much as this isn’t a popular cross. EUR/USD is the world’s most popular and AUD/USD is gaining traction in recent years. EUR/AUD? Yes.

EUR/AUD isn’t a popular cross. GBP/JPY, EUR/GPY and EUR/GBP are far more popular. I noticed this price by chance – it’s almost a decade low. Back in May 2000, EUR/AUD traded lower, as low as 1.5010.

May 2010? At that time, the Euro was a little more than a year old, and was just a monetary instrument. There were no Euro notes or coins – they were introduced only in January 2002.

Usually such a breakout means that the pair has more to fall, but it’s hard to say where to. Looking at lower levels from is quite meaningless. Lower levels were seen so far in the past, that they are only anecdotal now. In addition, there was no Euro before 1999: the charts are based on the Deutsch Mark, French Franc and even the Greek Drachma.

Fundamentals well reflected

This cross will move by fundamentals more than technicals. Readers of Forex Crunch are aware of my bearish sentiment towards the Euro, and especially my appreciation of the Australian economy. Unemployment in Europe is almost double the Australian unemployment rate.

The Australian economy enjoys prosperous trade with China. This kept Australia from falling into recession. In Europe, the big countries such as Germany and France are doing well, while the small countries are weighing heavily on the continent. Spain has an unemployment rate of 20%. Ireland, Italy and Portugal are in heavy debt. Greece has biggest debt – half a trillion dollars, or more than all its GDP.

The interest rate gap: 3.75% to 1% in favor of Australia makes it an interesting carry trade as well. Long term investors have seen EUR/AUD fall every month since February 2009 going all the way from 1.98 to 1.52. That’s a whole year. Apart from the profit made by the change of price, the interest rate gap has brought a small overnight profit every day.

Are you following, monitoring or trading EUR/AUD? I’d be glad to know.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forex Daily Outlook – February 17th 2010

Posted: 16 Feb 2010 02:00 PM PST

A busy day expects forex traders, especially those trading cable. Major figures will be released in Britain and the US. Will the Pound chose a direction? Let’s see what’s awaiting us:

Fear is fading away from the markets, and high yielding “risky” currencies are on the rise. The Australian and kiwi dollars are making gains, erasing losses made in recent weeks.

Choppy Pound trading

British employment figure are expected to be good: Claimant Count Change, the earliest and most important report of unemployed people, is predicted to show a third month of drops – 14.6K, simillar to last month’s nice drop.

This will be accompanied by the Unemployment Rate. Although it related to December, this is an important release. British unemployment rate is predicted to stay at 7.8%. Learning from the past, this could be lower – better.

The last event comes from the central bank – the MPC Meeting Minutes will reveal how the members voted in the last rate decision – they don’t share the same opinions, especially regarding the Quantitative Easing program. Mervyn King didn’t rule out allocating more money to the program.

For more on the Pound, read the GBP/USD forecast.

In Europe, Trade Balance will be released and is expected to show a small rise in the surplus. EUR/USD continues to move mostly by the headlines about the Greek debt crisis. For technical lines, read the EUR/USD forecast and Casey Stubbs’ articles.

Canadian Wholesale Sales are predicted to edge up by 0.6%, less than last month’s move. Later in the day, BOC Deputy Governor David Longworth will make a public appearance and might move the loonie, especially if he relates to the interest rate. Read more on USD/CAD in the Canadian dollar forecast.

American figures pouring in

In the US, there are a lot of indicators today: Building Permits are predicted to tick down from 0.65 to 0.63 million. This important housing sector indicator will be accompanied by another one – Housing Starts, which are expected to make the opposite move – rise from 0.56 to 0.58 million.

American Import Prices, which were unchanged last month, are expected to rise by 0.9%. Capacity Utilization Rate is predicted to edge up from 72% to 72.6% and Industrial Production will probably follow last month’s 0.6% rise with a similar 0.7% rise.

The most important event comes later – the FOMC Meeting Minutes will show why one member preferred to drop the words “extended period” from the statement. The big question: when will there be a rate hike in the US won’t be answered, but we might get some hints about the mood inside the Federal Reserve.

The Federal Budget Balance will finally be released after many delays, and it’s expected to show a smaller deficit this time.

The last event for today comes from Australia – RBA Assistant Governor Philip Lowe will make a public appearance and might shed more light on the state of Australian economy. The Aussie is on the rise. For more, check out the AUD/USD forecast.

That’s it for today. Happy forex trading!

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forex technikal and fundamental analysis

Feb 17, 2010

Forex Crunch British Employment – A Bitter Disappointment for the Pound

Forex Crunch British Employment – A Bitter Disappointment for the Pound

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