Ralph Shell @ 1:25 PM, Monday January 11 2010
It is always difficult to assess if the market is responding to the echoes of previous reports, numbers and dreams, or focusing on visions of what the future may hold. Perhaps if the markets were more accurate and efficient in the appraisal of current conditions discovery of the "right price" would not be so difficult. The recent consensus that the US recovery was happening, and the Fed was now beginning to make plans to tighten liquidity and raise rates, was quashed by Friday's US employment reports.
Hidden beneath the bold headlines was the number 661,000k. That was the number of people the government report said, called it quits and removed themselves from the ranks of active job seekers. We doubt the government actually has a list of these slackers and quitters but reduction of the active work force by that amount, allowed the Gov to report the unemployment rate at 10% rather than 10.4% had the 661k remained part of the job seekers. At 10% we remain on a parity with the EU unemployment rate, but the U6 which many feel represents the real unemployment rate, was 17.3%. With 2010 an election year, and history shows the underemployed usually do not favor the incumbents, it is doubtful any increase in interest rates will be sponsored by the Fed until after the election.
During the past 6 weeks it looks like the speculator has moved from a short to a long dollar position in all but the commodity currencies. Now that it has been revealed the US recovery rate, is not robust enough to absorb the millions of under employed, and Fed induced rate increases may be slow in coming, we wonder if some of the new dollar longs may having some buyers remorse.
Speculators have been very aggressive sellers of the pound, and that pair may be showing some signs that the break may be about over. The daily chart looks like it is trying to turn around, after the higher low from 1/7/10. We are going to try to buy the pound versus the dollar in the 1.6050 area. We hope that the retracement is contained by another higher low. The target is going to be in the 1.63/1.6350 area.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.