Business-Insider

The U.K. currency slid to $1.9995, from $2.0121. Dollar may slump against pound, snapping 2 days rally after Fed minutes showed FOMC members will keep a close eye on financial market conditions. Fed minutes may cause weaker dollar against pound and other high yield currencies. Consumer confidence is negative for dollar too. Pound may be also supported on speculation carry traders will return.

By Luckasi

Given what happened today on Wall Street, expect to see further unwinding in equity/carry trade markets in the next Asian and European trading sessions.

Kind of a perfect storm for a bear market occured today, starting with Merill's downgrading several important financials. Citigroup, Lehman Brothers and Bear Stearns led all 93 financial companies in the Standard & Poor's 500 Index lower after Merrill Lynch reduced its recommendation on the shares saying earnings would be decreased due to the ongoing problems in the housing and commercial credit markets.

The FOMC minutes, though dated at this point, gave markets no indication that the Fed was closer to making a rate cut, despite the fact that the Fed's economic team had revised down their growth estimates prior to the last rate decision.

News that State Street was having problems in the ABCP market also upset market participants, who has gotten used to seeing a bit of easing there. The Consumer Senitiment report indicated that gas prices and falling home values were putting a dent in the all-mighty U.S. consumer.

There was a strong flight to quality today, as 3 mo T-Bills gained nearly 30 basis points on the day, a clear indication that traders want to get as far away as possible from anything related to asset backed paper.

As carry trades unwind, the dollar appreciates vs the high yielders and loses value vs. the Yen, meaning that currency pairs such as the GBP/JPY depreciate. You could see 225.5 there by the time the smoke clears.

If you're interested in finding out about my trade room, blog and trading primer contact newstraderfx@yahoo.com

By John Jagerson, 28 Aug 2007

I am already seeing some reports today that the huge decline in U.S. consumer confidence was due to housing problems. For once, that is not the only culprit. Concerns about job security and the labor outlook in the confidence report was the big leader. Overall confidence fell to June levels and completely reversed July's "confidence rally." With a reading of 105, the report has hit a year low at a level we have not seen since 2005.

This volatility in consumer confidence is not a surprise. Debt his very high, savings are extremely low and anxiety over falling home prices and rising mortgage rates are psychologically very stressing to the U.S. consumer. This volatility is only going to increase and ultimately it will undermine the fragile strength in the U.S. economy to the point that the Fed may have to jump in and take extreme action. Lowering interest rates aggressively could buy a lot more time for the economy to work itself out and may begin to reduce the impact of the sub-prime nightmare on the U.S. consumer and businesses.

In my opinion, the take away here is that investors are going to have to deal with a high risk financial market environment in the near term. The wild-card Fed will continue to spook investors and a shift out of riskier assets is likely to continue. Therefore, I think the USD/JPY is a long term sell and the USD will ultimately weaken against currencies with monetary policies that emphasize stability over growth.
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The volatility of the 1st Friday of each month that NFP is released is not just down to the number of jobs created, this is a complex release that has four components that Traders must be aware of:

1. The actual number of jobs reported as being created this month,
Augusts' number is expected in at 135k, and is an average of analysts’ figures that range from 200k to 60k. The High to Low difference is enormous.

2. The revision to the previous month’s number,
Probably as important as the new number, the revision can add 50k to the previous amount, and that is what creates the volatility as Traders re-align their previous thoughts on what happened four weeks ago.

3. Employment Rate,
Currently at 4.5% is one of the lowest in the world and has stayed between 4.5-4.6% recently.

4. Average Hourly Earnings,
Looking at coming in around 0.3%, this is the number that the Fed stated was causing it concern as an inflationary read. Wage increases stoke inflationary pressures and the FOMC members have said that they are more concerned with inflation than they are the housing market.

If the NFP prints an increase in jobs, and the Revision stays close to last month’s number (132k) or higher, the Unemployment Rate stays below 4.5% and the Hourly Earnings post at 0.3% as expected, Traders will have confirmation that the economy is looking robust, inflationary pressures are around and no interest rate decrease is likely from the FED. That will likely strengthen the $ as the weakness in the Greenback recently has come from the fear that the housing sector will drag the manufacture and service industry lower; a positive read on jobs and wage growth will reduce those concerns.

The fly in the ointment is the US housing sector, it is weighing on most analyst's minds as they look towards 2008 and some are predicting an interest rate cut to compensate for the sub-prime lending problems that are prevalent now. The FED will not want to be lowering rates to appease the housing problem if there is any sign of CPI increases and inflation in the economy. It is a fine balancing act, one that will be made a little easier if the releases tomorrow are strong.

Be very careful Trading the NFP, there are many components to look at, maybe better to find the Support and Resistance ahead of time, let the explosion of price take place, hold fire, keep the gunpowder dry and let the Market come to you, one way or the other after the first 10-15 minutes. The initial breakouts are always retraced, let the Market show which way it wants to go, check that the $ is running the same way against all of the Major Pairs and be in control of anything that gets taken tomorrow.

The Asian Markets are closed by the time NFP is released, they will pick up the baton on Sunday evening, so do not be in a hurry to get involved, if it comes your way then get on board, but do not be standing on the platform waiting for the Non Farm Express only to see it rush straight past you going down the track in the opposite direction.
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