Forex Trading Guide

U.S. Personal Income and Consumption Fared Worse than Expected During September

2010-11-01T17:38:00.000-07:00

Personal income fell 0.1% in September, falling well short of market expectations for a 0.5% monthly gain. Income growth in August was revised down to 0.4% from an original estimate of 0.5%.

Real disposable income fell 0.3% on the month, after a 0.2% expansion in August.

Personal consumption, on the other hand, expanded by 0.2% on the month, although this was also below market consensus, which was pegged at 0.4%. In real terms, personal consumption gained 0.1%.

Analysis of consumption by component shows spending in durable goods rose by 0.8% and spending on services gained 0.06%. On the other hand, spending on non-durable goods fell by 0.2%.

The personal saving rate fell to 5.3% from a downwardly revised 5.6% in August.

Inflation (as measured by the year-over-year change in the market-based personal consumption deflator) fell slightly to 1.1% in September, while the annual market-based core inflation rate came down 0.1 percentage points to 0.9%.

Key Implications

September's real personal consumption figure is aligned with the advanced GDP release published last Friday, which showed this aggregate expanded 1.9% on an annual basis during the third quarter.

Amidst very weak job creation, still tight credit conditions, and the need to reduce debt, households' consumption is set to grow at around 2.0% during the fourth quarter, and to accelerate very modestly to 2.2% annual growth by the end of next year. Given that private spending accounts for roughly 7/10 of GDP, this will translate into a contribution of roughly 1.5 percentage points to overall economic growth.

Today's report reaffirms the prospects of subpar economic growth and very low inflation expectations which will provide firm ground for more monetary stimulus to be announced by the Federal Reserve after the FOMC meeting concludes on Wednesday this week.

Trade Idea Wrap-up: USD/JPY – Sell at 81.40

2010-11-01T13:13:00.000-07:00

USD/JPY – 80.69

Most recent candlesticks pattern : N/A
Trend : Down

Tenkan-Sen level          : 80.52
Kijun-Sen level                   : 80.84
Ichimoku cloud top                : 81.22
Ichimoku cloud bottom            : 80.82

Original strategy :

Sell at 81.20, Target 80.30, Stop: 81.60

New Strategy :

Sell at 81.40, Target 80.40, Stop: 81.80

As the greenback has rebounded after holding above indicated support at 80.21, retaining our view that further consolidation would take place and above 80.82-84 (current level of the Ichimoku cloud bottom and Kijun-Sen) would bring retracement to the upper Kumo (now at 81.22) but intra-day resistance at 81.60 should hold, bring another decline later. A break of said support at 80.21 would signal downtrend has resumed and extend weakness to psychological support at 80.00, however, loss of near term downward momentum should prevent sharp fall below the record low at 79.75.

Trade Idea Wrap-up: EUR/USD – Buy at 1.3850

2010-11-01T08:48:00.001-07:00

EUR/USD – 1.3890

Most recent candlesticks pattern : N/A
Trend : Sideways

Tenkan-Sen level               :1.3937
Kijun-Sen level                 :1.3943
Ichimoku cloud top              :1.3871
Ichimoku cloud bottom          :1.3843

Original strategy :

Buy at 1.3850, Target: 1.3950, Stop: 1.3805

New strategy :

Buy at 1.3850, Target: 1.3950, Stop: 1.3805

As the single currency has extended intra-day decline from 1.4012, suggesting near term downside risk has increased for test of the upper Kumo (now at 1.3871), however, reckon downside would be limited to 1.3840-43 (61.8% Fibonacci retracement of 1.3734 to 1.4012 and current level of the Ichimoku cloud bottom), however, reckon support at 1.3807 would hold, bring rebound later this week. Above 1.3937-43 (current level of the Tenkan-Sen and Kijun-Sen) would suggest retreat from 1.4012 has ended and bring another test of this level, above there would extend upmove from 1.3734 to 1.4050/55 but price should stay below resistance at 1.4080.