Usd/Jpy Triangle, bearish breakout to come!

Three-wave structures are shown on a daily chart, with the trapped price action between 80.30 support and 84.00/40 resistance region for some time now.

We know that three-wave formations are corrective waves, and as such, the whole price structure since October 2010 must be a corrective pattern, that may finish soon.




Wave E, final leg of a pattern must complete somewhere below 83.96 region.

New lows should be seen in days/weeks ahead.

Guest post by Gregor Horvat.

Non-Farm Payrolls Report: Good but not Great

Despite what appears to be a relatively healthy labor market report that showed U.S. companies adding 192k jobs last month and the unemployment rate dipping to 8.9 percent, the lowest since April 2009, the dollar failed to onto its initial gains against the Japanese Yen. The non-farm payrolls report is notorious for triggering significant volatility in the foreign exchange market and it has certainly lived up to its reputation this morning with the EUR/USD trading as high as 1.40 only to sink back below its pre-NFP levels. The problem is that February was a good but not great month for the labor market. Going into the non-farm payrolls report, everyone expected a strong number because of the weather related distortions that made job growth in January unusually depressed. A revision was also anticipated for the previous report but the size of the revision (from 36k to 63k) was nominal considering that severe storms prevented more than 700k Americans from working that month. As we said in our non-farm payrolls preview, job growth needed to exceed 250k in order for it to be unambiguously positive for the U.S. dollar. The improvement in the unemployment rate is encouraging and will make the Federal Reserve look good for finally bringing the jobless rate back below the psychologically hobbling 9 percent level. However it is bittersweet considering that the participation rate remained at a 25 year low, average hourly earnings were flat and average hours remained unchanged. If the participation rate was closer to its 25 year average of 66 percent, the unemployment rate would be over 11 percent. This of course will be lost in the headlines as everyone focuses on the 8.9 percent print. Yet we cannot ignore the fact that the Birth/Death adjustment also added 112k jobs to this month’s report.

But will it Change much for the Fed?

The key takeaway is that today’s non-farm payrolls report changes little for the Federal Reserve. Bernanke may be relieved to see another month of improvement in the unemployment rate, but given the underlying weakness of the report, the central bank will still argue that unemployment remains extremely high and therefore continued stimulus could be warranted. Given recent comments from Fed Chairman Ben Bernanke, the U.S. central bank remains on the fence about ending asset purchases in June. Despite the strength of today’s jobs number, the true trend remains unclear and even though the labor market is moving in the right direction, the Fed will need to see more consistency over the next few months before becoming convinced that the decline in the unemployment rate is an accurate reflection of the how the labor market is performing. It is important to remember that the central bank is far from meeting is dual mandate of maximum employment and price stability. Unemployment remains high and for this reason, the Fed will probably leave interest rates unchanged for most the year. In terms of QE3, the Fed doesn’t need to make their decision right now. They still have the opportunity to see 3 additional months worth of non-farm payrolls reports before making their decision. If the unemployment remains below 9 percent by June, then the central bank may feel confident enough to end their asset purchases. In the meantime, we cannot forget that the European Central Bank still plans to charge forward with raising interest rates as soon as next month with the Bank of England likely to follow. The prospect of higher interest rates in Europe and unchanged monetary policy in U.S. could make it difficult for any rally in the dollar to last.

Deutsche Bank's Mayer Says ECB Prolonging Record-Low Rates Is `Dangerous'

Deutsche Bank AG Chief Economist Thomas Mayer said it is “dangerous” for the European Central Bank to keep interest rates low for long.

What “I find dangerous is that we continue to get locked into this very low rate environment,” Mayer told a conference in New Delhi yesterday. “I am concerned that by keeping rates low for an extended period of time you are inducing people to build other decisions onto this low rate environment and adjust all their portfolio and investment decisions on these low rates.”

The ECB may raise borrowing costs next month to curb price pressures, President Jean-Claude Trichet said March 3 after keeping the benchmark at a record low of 1 percent even as inflation breached the bank’s 2 percent limit. The euro completed a third straight weekly increase against the U.S. dollar yesterday, the longest run of gains since October following his comments.

The ECB may raise rates by a quarter of a percentage point in April, Deutsche Bank’s Mayer told the event organized by the Institute of International Finance. He expects further quarter- point increases in September and December.

Trichet accompanied his rate warning by again urging governments to complete their budget cut plans this year even if that requires more austerity.

He has said for months that governments can’t keep relying on the ECB’s cheap credit to prop up the region’s economy as they split over providing a permanent cure to Europe’s sovereign debt crisis which first engulfed Greece, then Ireland and may next take down Portugal.
Challenging Programs

“European leaders have said that they will do whatever it takes to make sure the affected nations and their banks have access to financing as they implement very challenging, multiyear programs of fiscal, structural, and financial reform,” Lael Brainard, the U.S. Treasury Department’s undersecretary for international relations, said at the conference in New Delhi. “European officials are now at work on a longer-term framework to strengthen and redesign the financial mechanisms put in place to support economic reform.”

Growth in the member countries of the Organization of Economic Cooperation and Development looks “mediocre,” Secretary-General Angel Gurria told the conference.

The International Monetary Fund’s European Department Director Antonio Borges said at the meeting that the solution to the European crisis is greater integration.
Commodity Prices

High commodity costs, which are driving up price expectations, were among the challenges discussed at the conference.

Political tensions in Libya, the latest country to experience a wave of anti-government protests in North Africa and the Middle East, sent oil toward its sixth weekly gain in London.

Federal Reserve Chairman Ben S. Bernanke said on March 1 that the surge in oil and other commodity prices probably won’t cause a permanent increase in broader inflation and repeated that U.S. borrowing costs are likely to stay low.

A slack labor market will mute commodity-price inflation in the U.S., Brainard said yesterday.

The U.S. economy is in its early stages of recovery and may expand 3.5 percent to 3.9 percent in 2011, Terrence J. Checki, executive vice president for emerging markets and international affairs at the Federal Reserve Bank of New York, told the conference.
Brighter Outlook

New York Fed President William Dudley, who is also the vice chairman of the policy-setting Federal Open Market Committee, said in a speech on Feb. 28 that the “considerably brighter” economic outlook isn’t yet reason for the central bank to withdraw its record monetary stimulus.

“I think you can look at comments of Bill Dudley in recent days. They are pretty clear on where they stand, on where they see monetary policy going,” Checki told reporters in New Delhi yesterday when asked about the outlook on U.S. rates.

By contrast, China, the world’s fastest-growing major economy, on Feb. 8 raised rates for the third time since mid- October. India’s central bank has raised its benchmark repurchase rate seven times in the past year while three of the Bank of England’s nine policy makers last month voted for an increase.