Trading Tip – Though we are not expecting erratic price action as traders brace for Friday’s NFP report, we must remain cognizant that current market volatility does not offer much by way of range trading opportunities. Conservative traders intent on following a range-trading strategy may opt to halve their exposure. Should the position be sufficiently close to either profit target ahead of the ISM report on Tuesday, traders may want to lock in profits at that point without braving the release. To control risk even further, we will remove any unfilled orders following the close of the US session on Thursday, choosing to remain on the sidelines during NFP. We will also remove the order if spot hits 0.7980 prior to execution.
Event Risk for New Zealand and the US
New Zealand – This week has brought stellar Current Account and GDP releases for the fourth quarter. The result owed most to the booming export sector. Primary products make up 70% of all New Zealand exports, so rising commodity prices have lined the pockets of Kiwi firms shipping their wares abroad. That said, exports make up about 30% of overall income, while domestic consumption accounts for close to 60%. With record high borrowing costs in place at 8.25%, consumer spending is sure to suffer going into 2008. A consumer confidence reading from Westpac printed at the lowest level in 10 years earlier this week, offering a look into things to come. Next week will see Business Confidence and Commodity Price figures for March, giving insight into how long the external side of the economy can uphold the domestic one.
United States – This week has been a busy one for US data. Results were broadly mixed, with Existing Home Sales surprising with a resolute uptick versus market expectations of a decline all the while Consumer Confidence deteriorated nearly 10 pointes more than forecast. New Home Sales returned lackluster results, but this metric can be expected to rebound after Existing Home Sales as inventories are cleared out. A darker turnout came in a negative Durable Goods reading for February, with the metric dipping into negative territory versus expectations of a slight increase. This added further to compounding negativity for near-term consumption levels. Tomorrow’s Personal Spending report will no likely follow suit. Next week is sprinkled with various minor data releases, but the market’s focus will no doubt center on Friday’s Non Farm Payrolls report. Though March’s ISM Manufacturing figure is due on Tuesday, we are unlikely to see the result priced in until NFP has been revealed. A breathless market waiting patiently for Friday’s event risk will make for a fertile range bound environment. On balance, should the ISM surprise, it would be to the upside as negative sentiment already abounds for the troubled greenback. This would favor the direction of our trade.
Al Bawaba
