There is talk of a short squeeze when it comes to the US dollar by many pundits, and I think that is part of what we are seeing. This is especially true considering that interest rate expectations in the United States are rising, while recently the European Central Bank suggested that perhaps the interest rates would remain low for “an extended amount of time.” That of course has put bearish pressure on the EUR, as one would expect. If the jobs number on Friday comes out stronger than anticipated, this will only drive interest rates higher in America due to interest rate hike expectations. This obviously puts downward pressure on the pair, and I think that we would clear the 1.20 region and go much lower. At this point, I would anticipate a 1.18 handle relatively soon.
If we break from here, and go higher, it’s not until we break above the 1.2150 level that I would be convinced that we are going to go higher. I would say that the market is most likely going to find more selling pressure at this point though, because we have seen such a change in attitude over the last week or so. Once we get the jobs number out of the way, that will give us even more information in which to make our decision. It looks as if the summer could be good for the US dollar, and Friday may be the beginning of that.
The British pound rallied a bit during the trading session on Wednesday, reaching towards the 1.3650 level again. This was an area that held support previously, and of course was just below the major uptrend line. On the daily chart, the 200-day SMA is somewhere in that area as well, so there are plenty of reason to think there could be a bit of support here. However, it’s not until we get above the 1.38 level that I’m convinced we have turned around completely. There is still a high probability of the previous uptrend line offering resistance, especially if the jobs number in America is strong. This will put upward pressure on interest rates in America, and that of course drives of demand for the US dollar.
If that selloff happens, we will probably go to the 1.35 handle, and perhaps even lower than that. Ultimately, I believe that this market will continue to be very noisy, but the next couple of sessions will decide where we go for the next several months. Because of this, I believe that this jobs number on Friday is going to be one of the biggest announcements this year when it comes to the GBP/USD, perhaps eclipsed by only the negotiations between the United Kingdom and the European Union. However, I think this jobs number could determine where we go for most of the summer. Thursday will be rather quiet more than likely though.
The Australian dollar danced with the 0.75 level during the trading session on Wednesday, as the large figure of course has caused a reaction. The market has recently broken through a major uptrend line, and the 0.75 level was the next major area underneath. I think that the market breaking down from here makes sense, because we have seen a significant breakthrough support. However, between now and the jobs number it is unlikely that we will see a major move. In fact, we may see a short-term bounce, but that bounce should end up being a selling opportunity.
If the jobs number comes out strong, that will be yet another reason to think that interest rates are going to rise in the United States even further, and that should continue to put pressure on this pair as the greenback strengthens. It will also put pressure on gold, so it’s a bit of a “double whammy” for the Aussie dollar. Alternately, if the jobs number comes out very soft, that could put some of the interest rate hikes in question, and that of course is negative for the US dollar which should send gold and the Australian dollar higher. Between now and then though, it’s hard to imagine a lot of people will be willing to put a ton of money into the market. That of course means that we probably won’t go very far in the short term, but most certainly by the time 8:30 AM EST rolls around on Friday, things will get interesting.
The US dollar was relatively quiet against the Japanese yen during the trading session on Wednesday, as we are sitting just below the 110 level. This is an area that not only is psychologically important, but it is structurally important. I believe that if we can break above the 110 level, the market should then go to the 112.50 level after that. Alternately, if we fall from here I think that we will probably go looking towards the 109-level underneath for support. A breakdown below there opens the door to the 108 handle. I believe that the “floor” of the market is closer to the 107.50 level, so I think that pullbacks between here and there will eventually offer value the people are willing to take advantage of.
However, if the jobs number is horrible, that could be reason enough to selloff in this market. I believe that the dips will continue to offer value, and eventually we will get enough volume to break out to the upside. If the jobs number is strong, that will send even more money in that direction, and we will break through rather quickly. Over the next 24 hours though, I think it is going to be difficult to put a lot of faith in the moves that could occur. We have been in an uptrend for some time, and I think we’re about to make an even bigger move.