USDX HOURLY

WIth A Break of the 55DMA HRLY and Harmonic ABCD Target 161.8 Expansion from the ABC low of 75.70 61.8% Expansion coming @ 77.00 Target 1

The last 5 months have seen positive job growth, and the Fed is probably looking at February’s figure as a benchmark for “stronger” growth. If we can move above the 200K level in March, and sustain that kind of level of job growth in the coming months it will make it easier for the Fed to wind down their Quantitative Easing 2 program, and begin taking steps to signal higher rates by dropping the language calling for rates to stay at ultra low levels for an “extended period.”

Therefore if job growth hits expectations or bests them, then the USD ha a chance to stiffen and perhaps even strengthen. At this point interest rate expectations have been an Achilles heel for the greenback.

Consumer Confidence Set to Fall in March, but Spending Higher in February

Jobs aside, the other data of interest will include measuring the moods of consumers which have recently been hit with rising gas prices. The Thomson-Reuters/UMich consumer sentiment index, which tends to move more in sync with inflation expectations fell to its lowest level since November 2009 for the March period hitting 67.5.

The Conference Board index of consumer confidence, which will be released on Tuesday, moves more in sync with the job picture, but it too is expected to follow sentiment to a much lower level, with expectations for the confidence index to fall to 63.0 from 70.4 in February.



Now just because consumer confidence falls doesn’t necessarily mean that consumer spend less, and we will get an indication of consumer spending on Monday when personal spending figures are released for February. Expectations are for a 0.6% increase from 0.2% in January. While that doesn’t include the period that the consumer confidence data measures, February was the period when oil prices started to rise and were reflected as higher gas prices. If spending picked up in February it would help boost the personal consumption component

Manufacturing to Post Another Robust Month of Activity

On Friday, we also do get the first national reading on March manufacturing activity via the ISM manufacturing purchasing mangers index. It’s expected to slip slightly to 61.2 this from 61.4, but that would still be a very strong reading, as any figure above 50 denotes increasing activity.



Here is a look at manufacturing over the past 3 years. We can see how after dipping in the summer of 2010, manufacturing has bounced back to its highest levels since post-recession. We should remain at those high levels in March.

Earlier in the week, we get a look at overall business sentiment in the form of the Chicago Business Barometer, formerly known as the Chicago PMI. It’s forecast is to show the pace of activity in both the manufacturing and services sector slow from 71.2 in Feb. to 68.9 in March.



Here too we can see that the past 3 months have seen stronger increase in activity since the end of hte recession. So, even as the Chicago PMI falls back from its February levels, its still high by historical standards showing the momentum the US economy has at its sails to start 2011.

Housing Prices to Show the Weakness in Housing Sector

While there are several other important releases through the week, the last one we will focus on is the S&P/Case Shiller 20-city house price index. The figures are for January, and compared to a year ago, home prices are expected to decline 3.3% compared to a 2.8% drop in December.

It would be another piece of data showing a faltering housing market. While the poor state of the sector is cause for concern, housing sector can’t get much worse in terms of its contribution to GDP.

Can Jobs and Manufacturing Lift USD?

Overall, this weeks data will show the strengths and weaknesses of the US economy. While jobs growth should continue apace, helping to push forward a Fed exit strategy, and manufacturing continues to perform admirably, there will be some worry over the state of the consumer as confidence falters, and especially if spending figures for February undershoot expectations. behind all that, we conitnue to see a weak housing market.

Will the USD strengthen or weaken as a result? It will be a tough call as the USD has been weaker vs its main rival the Euro as a result of interest rate expectations, and has lost ground to higher yielding commodity linked currenies like the Aussie and Kiwi as the market returns to “risk-on” trading with the events of Japan starting to be put in the rear view mirror.

However, the recent softness by the greenback can mean the market is a bit overstretched in favor hof the greenback’s rivals and therefore could see some retracement – as we started to see in the Euro towards the latter part of the week.

Can the prospect of another strong month of job gains and growth in manufacturing give USD bulls some ammunition? We’ll have to wait till Friday for those key releases. Before that we will be looking at the negative headlines of falling consumer confidence and sliding housing prices, which will not to the USD any favors.

Therefore look for the end of the week for opportunities to buy the greenback if it gets oversold prior to our non-farm payroll report.

Now, a weaker than expected jobs report would be the kiss of death for the greenback as it would put more pressure on the Fed to go slow in its exit strategy.

Nick Nasad
Chief Market Analyst
FXTimes


usdx Updated Prices need to hold 76.20 area possiable 4th wave up