US Dollar Surges Despite Spike in Unemployment - Is Risk Aversion Back?

US non-farm payrolls fell by a whopping 524,000 in December, which was broadly in line with expectations, and brought the cumulative amount of job losses in 2008 to 2.589 million, the most since 1945. Meanwhile, the unemployment rate rose more than expected to a 16-year high of 7.2 percent from 6.8 percent. The data only confirms the already bleak outlooks for growth going forward, as the minutes from the Federal Open Market Committee's last meeting showed that some members saw the potential for a "prolonged contraction."

Looking at historical data from the National Bureau of Economic Research (NBER) and the Bureau of Labor Statistics (BLS), between 1945 and 1990 the peak in unemployment generally coincided with an end to recessions. However, since 1990 the unemployment rate has extended higher long after recessions ended, as was the case in the contractions experienced during 1990-1991 and 2001. This suggests that until we see the end of this economic slowdown in the US, we cannot even begin to judge where the unemployment rate will peak, but it doesn't look good given the rapid increase in job losses over the past year.

So why did the US dollar rally in response? As it stands, most of the major currency pairs are trading within massive ranges, but major support levels for the US dollar have helped to stabilize its decline. For EUR/USD, falling trendline resistance prevented the pair from rising higher, while yesterday's highs weighed on GBP/USD. From a fundamental perspective, it is necessary to consider the fact that interest rates in the US can't really go any lower since the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent, and it is that interest rate dynamic (or lack of it), that is allowing the greenback to brush off this abysmal data.

Furthermore, other trends witnessed today, including the __ percent drop in the Dow Jones Industrial Average and surge in the Japanese yen, suggest that risk aversion is lingering in the financial markets. In reality, all it will take is some negative piece of news to shake investor confidence to lead equities to plunge and send the US dollar and Japanese yen spiraling higher.

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Euro Ends Day Just Below Key Resistance

Euro Ends Day Just Below Key Resistance - Will Euro-zone Retail Sales Weigh on Friday?

The euro continued to edge higher versus the US dollar, but major resistance at 1.3750 is blocking the pair’s way higher. Economic data out of the Euro-zone still suggests that the European Central Bank will cut rates next Thursday, but as we saw with the British pound and the Bank of England’s rate cut today, that doesn’t mean the currency will automatically fall lower. Nevertheless, looking at the data on hand, a measure of confidence amongst European consumers and executives fell during December to the worst level since record keeping began in 1985, suggesting that consumption is sure to slow further and businesses are far less prone to invest.

Furthermore, the Euro-zone’s unemployment rate rose to a two-year high of 7.8 percent in November from 7.7 percent, and given the dour outlooks for the economy, the deterioration of the labor market is likely to worsen. Friday’s data should add to this gloomy mix, as retail sales growth in the Euro-zone is forecasted to have stagnated during the month of November, leaving the annual rate negative for the sixth straight month. Such a result would be in line with the steady drop in the Purchasing Managers' Index (PMI) for the Euro-zone services sector, which has signaled a contraction in business activity throughout the second half of 2008. In fact, given this correlation, the timelier PMI results suggest that retail sales will remain weak not only in this reading for November, but for December as well. The impact on the euro should be minimal, barring a sharp, unexpected decline.

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Let Emotion Play No Role in Forex Trading

All market trading is a form of gambling, and as any gambler will tell you the bets most likely to work out badly are ones based on emotion. All traders have gut instincts, but a trade should always be well thought out and based on facts or research. Gut instincts may be right every now and then, but most of the time they are a result of greed or fear and can cost you a lot of money. Before each trade, use a diary to map out a solid plan of entry based on your trading system signals

For example, knowing when to exit a deal is vitally important, so you should know at which point you’re going to pull out, both on the high side (a winner) and on the low side (a loser). When the deal hits this price, follow your plan to exit no matter what your emotions are telling you.
Continual learning might seem obvious, but you’ll be surprise how many beginners read one book and think they know everything. All of the greatest traders are continually learning from their successes and especially their mistakes to get better. There are literally hundreds of strategies you can follow with Forex, and learning more about new ones can fine tune your trading and increase your profits.

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Forex Price Movement

How and Why Prices Really Move
This article is going to look at how and why prices move and how to win. Most novice traders make the mistake of thinking prices move to news stories and try and trade them or to some scientific theory - they don't. Forex prices are chaos - but that doesn't mean you can't win, you can and to do so, you must understand the key point of this article...

Here is the equation for market movement

Fundamentals (Supply and Demand) + Investor Perception of = Price

While the above sounds simple and it is most traders don't understand that the facts are NOT important it is how they are perceived by all the investors as a whole that is important.

Many people trade breaking news but it won't help you as it's discounted immediately and furthermore, investors are always looking to the future. To illustrate this think about this fact:

Market bottoms normally occur when the news is most bearish and market tops, when the news is most bullish.

The fundamentals are important long term - but in the short term prices are determined by the greed and fear of the investors, it's what they all think as group that determines price.

Many traders think because human nature is constant, there is a scientific theory of market movement - but of course there isn't. If there was, we would all know the price in advance and there would be no market at all.

Forex is an odds game and your aim is to trade high odds set ups, when the patterns of forex price movement dictate you should and the best way to do this is to use a simple robust trend following forex trading system.

Forex charts show you the supply and demand situation (they simply assume that all fundamentals show up in price action) but they do so something more - they tell you how all the investors perceive them.

Forex charting and technical analysis is not a science, it's an art. You're in fact, playing a similar role to a good poker player. You are looking to bet big on high odds sets, fold ones that don't go right and pass by low odds set ups.

Just like the poker player, you won't win every hand - but if you play the odds, you can win more than you lose and make a lot of money.

Forex charting is easy to learn and if you make it part of your forex education, you can learn it in about 2 weeks and get a robust forex trading strategy together which, you can apply in around 30 minutes a day.

If you can master it forex charting and spot high odds forex price movement patterns, the rewards are huge.

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The History of The Forex Market

The Bretton-Woods Agreement which originated in 1944, fixed national currencies against the US dollar, and set the dollar at a rate of USD 35 per ounce of gold. In 1967, a Chicago bank refused to make a loan in pound sterling to a college professor named Milton Friedman, because he was planning to use the funds to short the British currency. The bank's refusal to grant the loan was due to the Bretton-Woods Agreement

The Bretton-Woods Agreement was created after World War II, in order to stabilize and regulate the international Forex market. Participating countries agreed to try to maintain the value of their currency within a narrow margin against the dollar and an equivalent rate of gold.

The dollar gained a premium position as a reference currency, reflecting the shift in global economic dominance from Europe to the United States.
Countries were barred from devaluing their currencies to benefit export markets, and were only allowed to devalue their currencies by amounts less than 10%. Post-war construction during the 1950s, however, required great volumes of Forex trading as masses of capital were required. This had a destabilizing effect on the exchange rates that were established in Bretton-Woods.

In 1971, the agreement was scrapped when the US dollar ceased to be exchangeable for gold. By 1973, the forces of supply and demand were in control of the currencies of major industrialized nations, and currency now moved more freely across borders. Prices were floated daily, with volumes, speed and price volatility all increasing throughout the 1970s. New financial instruments, market deregulation and trade liberalization emerged, further stoking growth of Forex markets.

The explosion of computer technology that began in the 1980s accelerated the pace by extending the market continuum for cross-border capital movements through Asian, European and American time zones. Transactions in foreign exchange increased rapidly from nearly $70 billion a day in the 1980s, to more than $2 trillion a day 20 years later.

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La. Wish List on Storm Recovery: Don't Forget us

Still recovering from hurricanes Katrina and Rita, La. sends Obama a message: Don't forget us

More than three years after Katrina and Rita, and with billions of federal dollars already committed for recovery, Louisiana still has major requests -- and complaints -- pending on a wish list for the next president as rebuilding from the storms continues.
Louisiana's post-Katrina wish list for the next Congress and incoming Obama administration, lengthened by 2008 hurricanes Gustav and Ike, boiled down in a transition brief to one essential message: Don't forget us.
While progress has been made since Katrina and Rita lashed Louisiana in 2005, "our state still suffers an extreme housing crisis with affordable rental property hard to come by and billions of housing and infrastructure repairs yet to be completed," the Louisiana Recovery Authority said in the brief dated Dec. 8 and which the LRA provided a copy of last week.

The state's wish list for the Katrina and Rita aftermath include an extension of federal disaster housing assistance, including rental subsidies, set to expire March 1.
It also includes a call to push back by two years, to December 2012, a deadline to finish housing projects benefiting from tax credits due to the sour national economy. And there's also a call for establishment of a "blight removal fund" to help speed cleanup of thousands of derelict properties that are seen as stalling reinvestment in some devastated communities.
Louisiana also may seek a congressional appropriation if it can't come to more favorable terms with the Federal Emergency Management Agency on the level of Katrina damage to New Orleans' former public hospital for the poor, Charity. The state believes it's due $492 million; FEMA's offered $150 million.

Signs of Katrina's destruction remain in hard-hit communities of New Orleans and neighboring St. Bernard Parish. Hopeful signs -- new, elevated houses, reopened businesses -- give way to eery desolation in vast stretches of the Lower 9th Ward.
Abandoned apartment complexes blight slow-to-return neighborhoods in eastern New Orleans. Some houses still bear brownish-yellow water lines and the tattoos left by searchers in Katrina's frantic aftermath.
But progress is being made: In New Orleans alone, officials claim hundreds of millions of dollars in infrastructure projects are planned, under way or now completed. Hundreds of millions of additional dollars are lined up for neighborhood rebuilding and economic revitalization.

"The evidence of the recovery is going to get stronger and stronger as time goes on," said Mayor Ray Nagin.
But he also worries about "the people side of issues" -- affordable health care and improved mental health services in a community where he says many still grapple with post-Katrina trauma.
In his own letter Nov. 26 on the city's outstanding needs, directed to House Speaker Nancy Pelosi, Nagin listed terminal improvements at the city's commercial airport; upgrades at the train and bus depot used as part of hurricane evacuation plans; and water and sewer system work among the "ready-to-go" infrastructure projects, independent of Katrina, that he believes merit consideration for inclusion in a stimulus package.

"In the next Congress, your continued support of our ready-to-go infrastructure, as well as other priority issues" -- including rebuilding the city's health care and criminal justice systems, devastated by Katrina, and reforming the federal act that governs disaster recovery -- "is critical," Nagin wrote.
President Bush's hurricane recovery chief, retired Maj. Gen. Doug O'Dell, said in a recent interview that he thinks the federal government has provided ample resources to Louisiana and Mississippi for recovery -- and that a key task now is putting that money to work.
Of the $4 billion for permanent infrastructure work that FEMA set aside for Louisiana, $1.2 billion has been paid to the local level by the state, which has an accounting system of its own for the dollars.
One reason is the huge volume of work due to Katrina. Another, according to the state, is continuing frustration in getting FEMA to agree to what costs it will cover so cities have a clearer idea of what they can put out to bid.

FEMA spokesman Bob Josephson said there's often too much focus on a final dollar figure instead of on the overall scope of what needs to be done. He said the goal remains to cover "all actual and eligible costs."
O'Dell, who began in the post earlier this year and whose office is to be phased out early next year, began sit-downs with local, state and federal officials several months ago. His goal: to break through logjams and speed major projects.
While he calls FEMA's $150 million offer for Charity firm and all that's allowable under the federal law governing disaster recovery, he believes there's a potential public-private solution to the Charity fight.
The state's hurricane recovery chief, Paul Rainwater, wants to take his case for the $492 million to the Obama administration or Congress.

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