The effect of the unemployment data on the market was enhanced by the thin trading volume that the week closed on. Although this was the strongest and first positive reading since January 2008, it was not strong enough to incite confidence in the market. The dollar rose on risk aversion due to fears of too weak job growth.

Next week opens up on thin trading due to Easter Monday in Europe. There are also three interest rate decisions coming out of Australia, England and the ECB. There is also a Japanse interest rate decision, but don’t expect anything out of it.

Monday 3/29

14:00 GMT ISM Non-Manufacturing PMI and Pending Home Sales

The ISM and home sales data could be more significant than normal due to the below average liquidity on Monday. Traders should be aware of this.

Tuesday 3/30

4:30 GMT Cash Rate and Rate Statement

The Australian rate decision is expected to be up twenty-five basis points. AUDUSD will fall hard if this doesn’t happen. If the statement confirms that they will be continuing to increase rates look for AUDUSD to break above its highs.

Wednesday 3/31

8:30 British Services PMI

The expectation is for a slight decline but still within the expansionary levels. It would take a reading far off from expectations to have an effect on the market.

14:00 GMT Canadian Ivey PMI

Canada has shown itself to be a very resilient currency. The PMI data is expected to see a modest increase; this could be quite a boost to CAD strength

17:30 GMT Bernanke Q&A

His speech is never the important part. What is important is the question and answer section. With rumors of a change in the discount rate, this could be an important even if they do increase the rate.

Thursday 4/1

1:30 GMT Australian Employment Change and Rate

Even though 20K new jobs are expected the unemployment rate is not expected to change. Given that we will get an interest rate statement two days before this, it is unlikely to be an impacting event.

11:00 GMT BoE Official Bank Rate

This is only of significance if we get a rate hike, which is not likely to happen. If it does, look for massive GBP strength.

12:30 ECB Interest Rate Statement

The actual rate change comes in and hour and a half before this but since it will most likely not change the statement is far more important here, although I believe Trichet will only reiterate what he has stated in the past, rate hikes to come at the end of the year.

Friday 4/2

0:30 GMT Bernanke Q&A

More question and answer out of Bernanke, this is less likely to be impacting since he will be doing the Q&A session on Wednesday

11:00 GMT Canadian Unemployment Change and Rate

This looks to be strong for CAD as the employment situation is expected to show further strengthening out of Canada.

This week has seen the yen take major hits across the board. Is this the end of the carry trade fallout? Or is this just a head fake in expectation of positive employment data?

Look back at USDJPY in the long term, all the way back to 2007, and you will notice that it has broken that long term down trend. Meanwhile, EURJPY and GBPJPY are pushing up on former support levels and we have AUDJPY pushing up on medium term resistance.

Most of the yen pairs have bounced off of the 61.8 on the Fibonacci retracement drawn from the bottom of their unwind to their recent highs. Add on to all of that, the room that a yen sell has to grow and you have set the stage for a profitable long term trade.

Of course the one factor missing is the equation is of course the high paying interest rates. Australia leads the pack with a (relatively) whopping 4%, giving it a 3.9% advantage over the yen. The euro lags behind with a 1% yield followed by the UK at 0.5% and US at 0.25%.

Tomorrow’s employment data could have a significant, but short lived impact on the yen pairs. The expectations for the non-farm employment change are high, and likely to fall quite short, however the rate could come in line or even better, so it is hard to say which one will have the higher impact. Regardless of the outcome tomorrow we will be getting rate hikes this year, but not for at least three more months. If history serves as a warning, the carry trade will take off before the rates go up.

This past week saw a reversal of the traditional relationship between the dollar and equities. Normally they move in the opposite direction, but the run up in stocks was met with a strengthening of the dollar. This is not the first time it has happened but it is becoming more common. Could we be seeing a fundamental shift in the relationship between the dollar and risk?

In the week ahead, the main news event is the release of US unemployment data. We also get a good amount of data from the UK and Australia. The release of news starts out slow but picks up on Wednesday.

Monday 3/29

No important events.

Tuesday 3/30

14:00 GMT U.S. Consumer Confidence

Consumer Confidence has been hovering around 50 and 60, this release will have no impact around those levels. A particularly high reading above 70 could spark some risk taking in the markets but it is unlikely that this will be an impacting event.

Wednesday 3/31

0:30 GMT Australian Building Approvals and Retail Sales

Neither of these normally have a strong effect on the market. But they should both serve to reinforce the accumulated strength of the Australian dollar.

12:15 GMT ADP Non-Farm Employment Change

The trend for this release is becoming more positive and is approaching a positive number. If it does it will be the first positive reading since July 2008. I would anticipate a strong, if short lived reaction to a positive data release, which would increase expectations for a fall in the unemployment rate.

12:30 GMT Canadian GDP

Aside from the massive run up on Monday, the Canadian dollar is the only currency that the US dollar has lost strength against this week, showing the amazing resilience of the Canadian dollar. The GDP numbers will reflect this, although a reading above expected is highly unlikely.

Thursday 4/1

0:30 GMT Australian Trade Balance

I am expecting better than the forecast on this one, however it won’t be enough to break AUDUSD out of its current trading range. A hint of an imminent rate hike would be needed for that to happen.

8:30 GMT British Manufacturing PMI

This has been in expansionary levels for a few months now, and the expectations are for no change. It looks more likely that it would fall a bit, although I don’t think that will be enough for people to hate the Pound more than they already do.

14:00 GMT ISM Manufacturing PMI

Much like the British version of this number, it is in expansionary levels but unlikely to be increasing at this time. A very strong reading would be necessary for this to be impacting.

Friday 4/2

12:30 GMT U.S. Unemployment Rate and Non-Farm Employment Change

This is the most important news release of the week. The downtrend in unemployment has continued, and I continue to expect better than forecasted data for this. Typically estimates are overly pessimistic in a downtrend in unemployment.

This past week brought us some good information in the shape of the FOMC statement. The Fed gave a slightly upgraded outlook on the economy, and more or less stated that raising the Fed Funds rate would be the last step in their tightening cycle. It looks like we will not be losing these depressed rates anytime soon. Risk appetite built up in the beginning of this week but Friday brought risk aversion. Will next week reverse today’s action or continue it?

When we look ahead to next week’s data releases there is little to get excited about. For most traders this is good news, but be careful it’s usually when no one is watching that the news has the most impact.

Monday 3/22

20:30 GMT

Treasury Secretary Geithner will be speaking at this time. He will be speaking about financial reforms so this has potential to move equity markets, if something surprising is said, which has a large impact on risk based currencies, especially AUD and EUR.

Tuesday 3/23

9:30 GMT

The BoE is expecting that inflation will start coming down so as long as we get that don’t expect too much. However, a higher than expected reading could spook the market into thinking that they would raise rates sooner than expected, strengthening GBP.

Wednesday 3/24

12:30 GMT

Durable goods data is due out of the US. This generally comes in out of line with expectations, but the market is highly variable in its response. With the light news load for next week, this has potential to cause a shock in the market.

21:45 GMT

New Zealand GDP looks to be a strong news evet, given the high levels in AUDNZD. Both currencies are set to raise rates within a few months, so a release of this level of importance will be reflected in the Forex market.

Thursday 3/25

9:30 GMT

Once again the risk for news out of England is for too much inflation. With expectations of falling inflation, the BoE is set to hold rates steady.

14:00 GMT

More testimony out of Bernanke. His prepared statement has already been released, this is all about the questioning. An event with a highly variable effect on the market, you should at least be aware of it.

Friday 3/26

No important event.

Lately the theme that I have seen in the market has been a mild willingness to take on risk, except when looking at GBPUSD. On a day chart the pair still remains in its down trend although it is currently off of its recent lows. It has found support near 1.4870, which had been acting as resistance about this time last year. The pair also received some support by 1.50 being a sentimental level.

If you believe that risk aversion is just around the corner and the market is just taking a breather, then GBPUSD offers a good opportunity to profit from this. If the pair were to break past the recent lows near 1.4815 there is little in the way of previous support until 1.4400 and then 1.4100 below that.

There a plenty of fundamental reasons that you would want to short GBPUSD as well, with the BoE’s continual quantitative easing efforts being the foremost reason. There is also the lack of a recovery in their housing market. Creeping inflation, which normally strengthens a currency is a hindrance in this situation, since there has been little growth to compensate, setting the stage for a stagflation scenario.

Fundamentally, you have to ask yourself the question: Is England better off than it was a year ago? If no, then there is good reason to short GBPUSD.

Alternatively, since both GBP and AUD are risk based currencies you can look to buy the fundamentally stronger one, AUD and sell the weaker one GBP. In a scenario of risk appetite the AUD would gain strength faster than the GBP and in risk aversion the GBP would fall faster than AUD. Remember that being a low liquidity pair gives GBPAUD a higher spread and more volatility, not for the faint of heart.

Only a few times a year does a week like this happen. We get four interest rate decisions. They come from Australia, Canada, the UK and the EU. Sadly only one of these is expected to actually change their interest rate, but that makes this week no less significant. The most important aspect of a rate decision is the accompanying statement from the central bank, hopefully giving insight to what their next decision will be.

Monday

13:30 GMT

GDP out of Canada had a good reading on Monday; it was 0.20% above expectations, and gave significant strength to CAD

15:00 GMT

The manufacturing PMI came out below expectations but was still above 50, which is in expansionary levels. The market reacted favorably to this news.

Tuesday

0:30 GMT

Before their rate decision, there will be two news releases out of Australia: building approvals and retail sales. They are both expected to be positive, but building approvals is expected to be lower than last month while sales are expected to be on the rise, look for a reaction on stronger numbers, since the central bank is expecting the economy to return to a moderate growth.

3:30 GMT

Australia’s is the week’s first rate decision and the only one expected to change. They held steady last time after a series of rate hikes and are expected to increase their rate by 0.25%. Look for their statement to point to a hold in their next meeting, which could weigh on AUD

14:00 GMT

The Canadian interest rate decision follows the Australians. They will be holding steady at 0.25%. It is unlikely that they will be raising rates for some time now. They do not want CAD to be too strong and would like it to find support significantly above parity.

Wednesday

0:30 GMT

Australian GDP will be released and is expected to come in at 0.9%. Since the bank is expecting a return to normal growth rates, a higher than expected GDP would be quite market moving.

Thursday

0:30 GMT

The Australian trade balance will be released, and like the GDP numbers the risk is for too strong numbers.

12:00 GMT

Since the BoE will be holding rates steady we will not be hearing a statement out of that central bank.

12:45 GMT

The ECB will be holding their rate steady as well; however they will release a statement, about an hour later, but don’t expect much in terms of the timing of the next rate hike.

15:00 GMT

The Canadian PMI is released on Thursday; it is expected to move significantly into the expansionary levels, which should strengthen CAD.

Friday

9:30 GMT

Early GBP inflation data will be released in the form of PPI numbers. Remember that the BoE is expecting that inflation will come down over time so if this comes in above expectations the chance of a rate hike at the next decision could be greatly increased.

13:30 GMT

The unemployment rate is expected to tick up a small amount, however it could easily come in under expectations giving the market something to buy risk on.

This week has a steady flow of news coming to be released. The primary concerns are inflation, GDP and testimony by Federal Reserve Chairman Bernanke. Watch for the Chairman to reaffirm what he said in his statement last Thursday about a return to normalcy and that the worst of this economic downturn is behind us.

Monday

No major events.

Tuesday

2:00 GMT

The inflation expectations out of New Zealand are expected to increase by more this quarter. It is unlikely that we would see a rate hike out of them since unlike Australia they do not have the growth to allow for the increases.

9:00 GMT

The Ifo numbers have been strong the last few months, however the worry out of Greece will likely see this confidence squashed.

9:15 GMT

Inflation is up in the UK, however the Bank of England is ignoring this fact on the basis that they believe it to only be temporary. Expect more of this talk and that they will keep rates steady for some time.

15:00 GMT

Two weeks ago the consumer sentiment came in slightly below expectations, but the market was not affected by this news, the market seems to be ignoring the consumer at this point in time.

Wednesday

15:00 GMT

Wednesday is the first in a two testimony by Chairman Bernanke to congress. This event is a tossup and its impact depends on what questions are presented to him. It is expected that he will assure that last week’s increase in the discount rate was a one shot deal and that there will be no increase in the fed funds rate in the near future.

Thursday

12:45 GMT

One of the reasons that the Bank of England believes that inflation will be temporary is that there will not be the level of consumption to sustain it. However the sales data is in an uptrend so a positive reading here would put another dent in the BoE’s argument and push them toward a rate hike sooner.

13:30 GMT

The durable goods data only impacts the market about half of the time and with GDP numbers being released the next day , and Bernanke’s testimony continuing soon after this data release, don’t look for any reaction to the durable goods number.

14:00 GMT

This is the second half of Bernanke’s testimony to congress, expect more of what happened on Wednesday.

Friday

13:30 GMT

The US will release the preliminary value for its quarterly GDP. The expectation is for about a 5.5% increase, however this expectation is a bit high so look for a lower than expected reading, which is not necessarily a bad thing given the low federal funds rate.

I remember back before the summer of 2008, the EURGBP was a good pair to trade if you wanted a tight range that moved a slow pace. But of course the world of currencies was flipped on its head when interest rates around the world all began to head toward zero. This is still a good pair to trade, if you want a trade that is least correlated to the dollar.

Currently the situation in the UK is focused on inflation and growth. The current above target inflation is expected to only be temporary, by the central bank, so they will not be raising rates to combat it. In fact, they believe over the long term inflation will be under target and are more afraid of deflation. Also of concern in the UK is unemployment, which increased for the first time in ten months, making the central banks outlook for future growth seem a bit too optimistic.

Problems in the EU can be summed up into one word: Greece. The small Mediterranean country has been the bane of the EUR for the last few weeks, as their government’s apparent insolvency threatens all of the other members of the union. While, the UK’s unemployment looks to have started an uptrend, unemployment in the EU hasn’t had a respite since 2007, and currently stands at 10%. The good news is: their inflation had come in at around 1% year over year.

Inflation and insolvency is what separates these two currencies. While the Bank of England sees inflation as under control, the fact is that it is 1.5% above target and has yet to see any movement down as of late, no matter what rhetoric comes out of the BoE the data has not suggested that inflation will be letting off. Of course high inflation is hardly a worry when the threat of a bankrupt country hangs over your head, so much so that there are people speculating the end of the EUR. Fundamentally speaking, EURGBP has tremendous downward pressure, and as far as I know, no one is speaking about the demise of the pound.

From a technical perspective there is resistance for the pair at 0.8500. A break of this level would send the pair tumbling down to at least 0.8000 with the next lowest support levels residing near 0.7000. The pair has also been unable to break above any long term highs since the end of 2008.

The question that has to be asked before you short the pair is “Will the situation in Europe get worse faster than in the UK?” Of course no one can know this, but Europe definitely has much more potential for weakness than the UK does.

The In Focus series is a weekly long term compare and contrast of both economies in a currency pair and its technical levels.

What pair would you like to see In Focus next week? Tell us in the comments below.

There is little information coming out of the US this week at all. Most of the scheduled important news will be on the GBP. The British central bank sees inflation as currently rising but believes it to be temporary, so higher than expected inflation should not impact the markets much. Overall it is a quiet week on the news front so look for more technical trades than fundamental ones, especially range based trades.

Monday

No major events.

Tuesday

9:30 GMT

The release of the latest CPI data out of the UK will have little to no impact on the GBP, baring a very strong reading. Inflation is already expected to be very high in the UK and they are still not raising rates to combat it. If the data shows inflation above 3% then the head of the central bank must write a letter discussing why inflation was so far off topic. Most likely we will see this letter, and it will most likely state that the bank will still be holding, since they believe the inflation to be temporary.

10:00 GMT

The German ZEW survey has shown to vary greatly in its market impact. Sometimes it causes violent swings and others it goes by unnoticed. This release looks to be one of the stronger impacting ones given the precarious situation in Greece and Germany’s role in the bailout of the debt ridden country.

Wednesday

9:30 GMT

There are two releases out of the UK at this time. The first is the change in unemployment claims, it has been in a down trend so the risk here is for a higher than expected reading, especially a reading above zero. The second release is the minutes from the last monetary policy meeting minutes. It is expected to be a unanimous vote for hold but a single vote for a rate hike would send GBP soaring.

19:00 GMT

Similar to the central bank minutes out of the UK, the minutes out of the US are expected to be unanimous and showing solidarity among its members, so any evidence to the contrary would have a very strong effect on the market. Watch for anything that implies a rate hike on the horizon.

Thursday

13:30 GMT

The PPI data is the first of two inflation based data out of the US this week. Look for inflation to creep up a bit, if it comes in high enough, it could spark fears of a sooner than expected rate hike.

22:30 GMT

It is difficult to predict what impact a central banker has when he speaks. This time, however, the head of Australia’s central bank will be speaking, and expect it to have an impact. Last decision was to hold after three hikes so his testimony should give insight as to if this was just a breather or the beginning of a holding phase.

Friday

13:30 GMT

The second part of this US inflation data will be released, don’t expect any impact unless it contradicts Thursday’s number.

GBPUSD has established a slightly down trending range over the last seven months, and it currently sits as the bottom of that range. The markets look to be increasing the risk that they are willing to take on, and recent economic data, particularly last week’s unemployment number, has been stronger than expected. For now the pair will at least return to the midpoint of the descending range.

This week GBPUSD has been in a loose range this week, in between 1.5570 and 1.5715. The bias has been to the upside so watch for a break above the range. On that break, or even before, look to buy the pair for a long term trade with a stop loss below this week’s lows. The minimum target is 1.60 so you are going for around 400 pips.  This is a long term trade so be loose with it but don’t forget to secure some profit.