Aussie, Euro and Yen surge on weak US jobs data

January 13, 2014

Ouch, what terrible data the US non-farm payrolls were on Friday night with an increase of just 74,000 against expectations of a rise of 195,000 in the market. There was a bright spot insofar as that the unemployment rate fell to 6.7%, a drop of 0.3%, but it was largely on the back of people leaving the work force.

The impact was acutely felt in foreign exchange and bond markets with stocks shaking off the initial weakness.

The Euro rallied very strongly as the fundamental differences in the economies seem to narrow if this US employment weakness persists. The low on Friday was a low of 1.3566 before a rally to 1.3687 before closing t 1.3670. But it wasn’t just Euro shooting higher the US dollar was on the ropes across the board with USDJPY having a big reversal closing at 104.12 right back on support a break of which if it gives way will see a further big fall. GBP was also higher at 1.6478.

The Aussie also moved more than 1 cent higher closing at 0.8992 and the big question this week is whether or not it can break up through resistance.

Notwithstanding my piece about the relationship between the performance of mining shares and the Australian dollar last week – which is  very long term outlook and only a potential one – the Aussie today is very close to a break higher.

The Aussie is up more than a cent and is very overdone on the hourly charts which suggests perhaps ongoing resistance above 90 cents and below the 0.9025 level that is a signal that is is breaking higher.

But on both the 4 hour charts (above) and the daily charts the outlook is more toward a break of 0.9025 and a run higher. Should this come to pass the outlook is for a move to 0.9175.

We don’t talk about bonds here a lot but with Bill Gross from Pimco reckoning this will be a solid year for bonds and with such big moves on Friday night it is worth noting the moves. US 10 year treasuries had been trading the week up near 3% and opened the day at 2.97% before rallying strongly to close the day at 2.86%. UK 10 year Gilts rallied a similar amount closing at 2.88% while in Germany 10 year Bunds rallied 7 points to 1.85%.

Looking at stocks in the US we see that the Dow opened at 16,488 falling to a low of 16,379 before rallying back toward home for a fall of just 0.05%. The Nasdaq and S&P 500 on the other both fell hard as well but managed to rally back into the black with the Nasdaq closing 0.45% and the S&P 500 up 4 points to 0.21%.

Stocks in Europe did better than I would have expected given everything on the data front even though UK industrial production was weaker with no change in November against 0.4% expectations while in Europe GDP printed on expectations but still weak at just 0.1% qoq and -.4% yoy.

At the end of trade the FTSE was up 0.73%, the DAX was 0.55% higher while the CAC was up 0.61%. In Madrid and Milan stocks weren’t as ebullient as might have been expected up just 0.56% and 0.34% respectively.

Locally in futures trade the ASX SPI 200 March contract fell just 4 points to 5282 bid.

The big move on commodity markets Gold was the big mover up something of the order of $17 after the US dollar weakness to close the week at $1,242 and looking like it is building momentum.

It’s worth asking if gold is about to break higher or whether this is another false dawn. Now it’s also worth stating that I’m long gold – i’ve been long for too long and I hope that this is not a trade on hope – that’s not hte ay I trade. Rather with wit the recent low being last years low and my system suggesting a turn in the outlook I am running this for a test toward the trendline that was the 2013 downtrend.

$1,275 is the key level and would be expected to offer significant resistance technically but a break wuld target a move toward $1300 and then the 200 day moving average at $1,333.

On other markets crude bounced as well up 1.16% to $92.89 but still vulnerable if it has a weak close this week. Copper rose 3 cents to $3.40 lb while corn fairly soared after the USDA downgraded the crop forecast. The rise of 5% was one out given wheat fell 2.61% and soybeans rose just 0.58. Bitcoin ended the week at $992.

On the data front Australian home loans are out along with new loans in China and the French budget tonight along with US budget statement the the only other points of interest.

Have a great day and good hunting

Greg

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