Growth is improving?
The U.S. economy is gaining momentum and could perform better in the last quarter of the year. The latest ISM readings showed better-than-expected numbers in both the manufacturing and the non-manufacturing sectors. Sales of automobiles registered the strongest numbers in almost five years. The real estate market is stabilizing and stocks have held up nicely. As a result, consumer confidence has risen steadily. It is true that payrolls increased only 114,000n September. However, the jobless rates declined to 7.8%, while the household employment survey moved up 873,000, the largest swing in almost 10 years. The employment rate could improve further over the coming months. However, according to the study of cycles, a new increase in the number of unemployed is possible over the medium-term; let us see how. Since 1948, the unemployment rate showed two bullish cycles (1952–1961 and 1969–1982). Movements lasted for 9–13 years and extended 63%–67% from the top to the bottom. The unemployment rate climbed in three distinct waves. Within these secular bull-cycles, the unemployment rate topped/bottomed every 4/6 years. Corrections have instead continued for 1–3 years, top/bottom. How would this fit in to today’s scenario? Unemployment began in 2000. It topped in 2003, bottomed in 2007, and completed its second wave in 2009. The movement extended for 60% from the top to the bottom.
Three waves to the top?
A third and final wave is still lacking. If history repeats itself, it could be expected to occur between 2012 and 2013. In effect, bi-partisan compromise is necessary to overcome the fiscal cliff and to reduce the federal budget deficits. Until then, companies will not increase the pace of hiring and U.S. internal demand should stay subdued. A swing above 1.3280 will take EURUSD to 1.34. Declines should instead find good support at 1.26/5. Spain has not yet asked for assistance, although a decision is expected at any moment. The Eurogroup will meet on October 8, while the Ecofin Council will meet on October 9. On the table, there will be Greece’s request for milder conditions on the debt’s reimbursement. The risk/reward picture is still positive and the European currency could perform until year’s end. According to the latest Commitment of Traders report (COT), future funds are closing all the short positions and mildly increasing long ones. Seasonally, the last period of the year penalizes the U.S. dollar in favour of European currency.
Angelo Airaghi, www.ProfitsOn.com
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