Traders question the private USA ADP Employment Report.

You will notice that on the Wednesday prior to the official US employment report the market gets to see what a private research institute called ADP thinks about job creation in the USA and how many jobs were created in the previous month. The US has been creating on average over 200,000 jobs per month for over 12 months now and the unemployment rate has come down to 5.5%. However last month the US economy created just 126,000 jobs which sent shock waves through the markets and put a big question mark on the economy.

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Stocks rally again creating a roller coaster ride.

It’s been a roller coaster ride for stock indexes in the past week with the Dow Jones rallying strongly on Wednesday post the US Fed statement only to see much of those gains erased on Thursday. Come Friday and it was off to the races again with the buyers returning to send European and US Stock Indexes to fresh new highs. Our Euro Stoxx 50 position is now nicely out in front and I urge you to consider holding this position for the coming months.

The FTSE 100 has broken above 7000 for the first time ever and provided price can stay above 6976 for the balance of the week Friday’s daily close at 7017 will be a new daily high, weekly high and monthly high. The continued rally on the FTSE this week will likely depend on oil, gas and commodity stocks holding onto their gains as the FTSE 100 is loaded with plenty of energy, gas and commodity based stocks.


Greece has been negotiating its debt arrangements with the Euro Area and German Chancellor Merkel told markets on Friday that payments to Greece could begin shortly so long as its debt reform arrangements are approved. If Greece does get approval for its reforms and money flows to Greece, which is highly likely in my view I suspect this will send stocks in Europe and the UK even higher again. Don’t miss these potential big moves!

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US Fed statement drives the US Dollar lower and stocks higher.

They removed the word “patient” from their statement however it wasn’t the wording in the statement that drove traders to abandon the US Dollar and jump into US stocks on Wednesday. It was the Fed’s adjustment of its expectations for the US economy when it comes to inflation, growth and interest rates.

Traders on Wednesday assumed the US Fed would raise rates later in the year rather than sooner however Janet Yellen really didn’t give a firm indication either way. She simply said the Fed had removed the word “patient” from its statement but said the Fed could make a decision any month to raise interest rates. She’s certainly frustrating the market with her Dovish but yet slightly Hawkish comments.

Clearly the US Fed doesn't see the economy strong enough just yet but it is ensuring the market knows that if the data does rebound strongly, inflation lifts and job creation continues it could act at any time. One part of the statement that was also responsible for the US Dollar diving on Wednesday was the fact that US Fed lowered its forecast of where the official cash rate will be in December this year. It lowered its forecast by 0.50%.

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US Non-Farm Payrolls data comes a day early.

The first Friday of every month is the day the Labour Department in the US releases its monthly official unemployment report but due to the July 4th national holiday tomorrow the official unemployment data will be released today at 10.30pm AEST.

If last night’s private ADP employment report is anything to go by the official data tonight could surprise to the upside by quite a bit. The ADP private jobs report Wednesday showed that the US economy added 281,000 jobs in the month of June which is well above the market estimates of around 210,000 to 215,000. The US Dollar rallied on this news but I will remind you that on the odd occasion we have seen the private and official jobs data in the past be vastly different.  But overall it is generally a decent guide and my sensors are telling me to watch for a better than expected number tonight.

The US Dollar rose Thursday simply because of expectation of a pickup in the US economy which would mean the US Fed may need to change its stance on when they plan to raise interest rates. One jobs number won't change the Fed's mind but a number of solid months of jobs gains will certainly get their attention and the speculation rally could very well begin in September or October. If the US did create over 200,000 jobs in June that will mark the 5th consecutive month of jobs numbers over 200,000 and it would be the best streak of jobs numbers since the year 2000.

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LTG GoldRock Reviews the Week Ahead: December 2nd 2013

There is likely only one piece of news the market will want to wait for this week and that is the US jobs report on Friday. Yes there are other news items marked "High" but nothing is higher than the US Non Farm Payrolls number. 

Interest rate movements are critically important to the direction of any currency and the world is watching to see if US interest rates continue to steadily move higher. I personally am tipping another interest rate cut for Australia in February or March unless the Aussie Dollar is 0.85c to the US. The weaker Aussie currency will more than likely ensure interest rates are kept on hold when the RBA meets for the last time on Tuesday however the economic data supports another rate cut in my view early in the New Year. 

But Friday's jobs number in the US is the one to watch and if 200,000 jobs or more were created last month then the Aussie Dollar will more than likely finish the week back at the lows of 2013.

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I doubt the long term interest rate trends will change any time soon.

Today and tomorrow I am conducting a 2 Day LTG GoldRock Private Masterclass with 10 Traders here in Melbourne and we have this morning been discussing the long term interest rate trends of Central Banks and how they affect currency values. I don't believe you should fight against Central Bank trends. Let me give you a broad example below.

- Australian Dollar.  The RBA has been lowering interest rates as the economy has been weakening and finally the AUD fell from its highs once the spot light showed Australia had a generally weakening economy and interest rates were predicted to go lower. But what has been more forceful in directing the Aussie Dollar lower and higher at times has been interest rate predictions and stimulus predictions of the US Federal Reserve. One thing is clear the Australian Dollar is moving steadily lower as trader’s price in potentially higher interest rates in the USA in 2014.

- British Pound.  The Bank of England has said many times that it will likely put interest rates up once unemployment reaches 7% or below. So every time the UK gets a positive economic data announcement that points towards potential job creation, up goes the Pound as trader’s price in potentially higher interest rates long term.

- US Dollar.  The US Fed has interest rates at 0% and also has a stimulus program of $85 Billion a month it is injecting into the economy. This money printing has devalued the USD over the past few years but as the US economy appears to have now turned the corner and is steadily improving jobs are also being created. The US Fed has said it will likely slow the stimulus or raise interest rates once unemployment reaches 6.5% and growth improves. However what the market is fascinated with is when the US Fed will stop or slow printing money because when they do the US Dollar and interest rates are likely to rise in value.

It can be extremely helpful as a trader to understand what interest rates are likely to do to a major currency over the coming 6 - 12 months. In the case of the US Dollar, interest rates there are likely to go up and in the case of the Aussie Dollar interest rates and the economy is now pointing lower.

So how can you take advantage of this? One strategy which I would hold no objections to is trading a currency that has the likelihood of the interest rate in that country rising and trading it against a country that has the likelihood of interest rates and the economy is falling. An example of this right now would be short AUDUSD and short AUDNZD. The base currency is the Aussie Dollar in both examples and the cross currency the USD and the NZD. The AUD has the potential of lower interest rates and a weakening economy and the US has the potential of higher interest rates and an improving economy and so does New Zealand.

The most influencing factor in a currency value is what the collective market thinks about where interest rates will be for that currency in the next 6 months.