Friday, December 4, 2009

Forex Trading: Today's Dollar Outlook 12/04/09

 The dollar fell to a 14-year low of 84.81 yen on Friday last week. The market continued to extend declines to fresh multi-year lows since breaking below the recent 2008/2009 matched trend lows at 87.15. There is technically no real support now until 79.75 which represents the 1995 historic lows, and a retest of this level can not be ruled out at this point with the overriding trend so intensely bearish .However, daily charts are indicating a possible correction from oversold territories, and the shorter-term risks seems to favor additional upside back towards the 88.50-89.00 area before considering the possibility for another round of weakness below the recent 84.80 trend low. On top of that, after the dollar's decline to 84.81 level last Friday,  Japanese officials mentioned intervention as a possibility in order to weaken the yen. This temporarily put a plug on further dollar declines against the yen.  But this week's action - plans to offer about 10 trillion yen ($115.8 billion) in short-term loans to commercial banks to boost liquidity and maintaining the key interest rate at 0.1 percent - could help weaken the yen without resorting to selling the currency, analysts said.

U.S. non-farm payrolls are will be released today, Friday, December 4, 2009.  It is expected to contract to125K in November, which would be the smallest decline since March 2008, while the annual rate of employment is forecasted to hold at the 26-year high of 10.2%. From  the data, investors will definitely weigh the prospects for a sustainable recovery.

In anticipation of this Friday's data, we have seen a rise in risk aversion yesterday which drove the dollar higher as it continues to benefit from safe-haven flows.

Trading this Friday's data actually favors a bearish outlook for the greenback as economists anticipate the labor market to weaken further however, price action following an enhanced employment report could set the stage for a long dollar trade.

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