On Friday data on US Nonfarm Payrolls in April surpassed the expectations – 165K vs. forecast for 146-155K and revised upwardly figures from March from 88K to 138K. The Unemployment rate dropped to 7.5%. US Factory orders in March shrank 4.0% vs. expectations for -2.8% and data on February was revised downwardly from 3.0% to 1.9%. The S&P 500 Index added 1.03%, the euro grew 48 points with fluctuations within the day for 50 points. The investors have to decide whether QE3 should be expected in June or not.
Federal Reserve Bank of Richmond President Jeffrey Lacker voiced opposition to bond purchases by the Fed, saying the buying probably will not spur growth beyond 2% while making an exit from stimulus more challenging. “The benefit-cost trade-off associated with further monetary stimulus does not look promising,” Lacker said on Friday in a speech in Richmond, Virginia. “The Fed seems to be unable to improve real growth, despite striving mightily over the last few years, and further increases in the size of our balance sheet raise the risks associated with the ‘exit process’ when it’s time to withdraw stimulus.”
However, the housing market is improving at the moment; starting with mid-2012 the Existing home sales are rising and from September 2011 New Home Sales are increasing as well. In fact the Fed could reduce bond buying during the last meeting, on May 1. However, due to it was too early for it (the attention was paid to the unemployment rate) it was decided to postpone the decision. We suppose at the June’s meeting the decision will be taken. Probably investors think the same way. However, there is a question whether to buy the euro or not. On the one hand, the QE cut weakens the market, on the other hand, bond buying program has the other aim besides to finance budget deficit which is to sustain the yields on government bonds on the minimal levels and in order to make up for the yields’ growth with the cut of their buying, the Fed has to devalue the dollar.
It is impossible to forecast the Fed’s strategy at the moment. However, there is no need in it. The current situation may be solved by means of technical methods. In the area of 1.3010-1.3201 the concentrated euro’s direction will be defined. When the bottom testing level is broken (conjunction of the indicator lines on the daily chart) the targets 1.2925, 1.2845, and 1.2750 open. When the upper testing level is broken (the high of April 16) the targets 1.3360 and 1.3480 may be reached.
Locally when the level of 1.3053 is broken (the break of price channel on the H4), the first target of 1.3000 opens, the second target is 1.2954, and the third target is 1.2920. The test of channel may be expected if the price reaches the testing level 1.3102. When the price consolidates above 1.3137 (the high of April 11) the area of 1.3196-1.3201 may be reached.
Today at 13:00 GMT+4 data on Retail Sail in the eurozone in March is published, it is expected to drop 0.1% vs. -0.3% in the previous month. At 17:00 GMT+4 Mario Draghi speaks.
