Non farm payrolls are the single most important data release globally each month and the Fed has certainly elevated it in importance even beyond this usual status given that the taper appears to be hanging on it. So the print of 195,000 jobs in June which beat expectations of a rise of 165,000 and with revisions took the 6 month average to 202,000 was a very solid number.
The impact of course was that the US dollar caught a bid and my tow favourite trades of short GBP and Euro are performing very well and the Aussie was knocked for six again also.
Stocks did better than might have been expected and the internal market discussion that is occurring must be about the ability of the stock market to self sustaining momentum. I don’t buy it as I discussed in my weekly that was out over the weekend (subscribe to receive on Saturday or you can read it on the site each Wednesday morning) so even though I am trading the market in front of me the chances of a break down and through 1590 remain high over the next month or so
US dollar reigns again
I continue to see a sustained period of USD strength ahead as I noted many times and in my H2 outlook released a couple of weeks ago. Sterling is one of my favourite pairs to be short at the moment and I have been looking for a move back to 1.48 for a while now and the end of last week saw it break recent uptrend and then find support at the bottom of the range from where its rally started a couple of months back.
The close is a little above the range bottom but if the 1.4800 level gives way then my target becomes a move into the 1.42 low area whihc I have been looking for for an eventual test for some time as well.
The Euro found support as well on Friday night and as you can see in the chart below but it too remains under pressure from the USD and looks set for a substantial further fall toward 1.20/21 over time.
Both the ECB and the BoE have made it clear that they are going in a different direction to the Fed a fact that is pressuring their respective currencies and I believe doing exactly as they want.
So it is lower levels for both these pairs against the USD in the months ahead.
It also looks like the legs of the Aussie’s chair are a getting kicked out from underneath it again with a big fall on Friday night to a close of 0.9060 on Saturday morning. Remembering that the USD is one of the key 5 drivers of the Aussie if it is going to strengthen then the AUDUSD is going to come under pressure – ceteris paribus.
0.8916 remains my short term target with big resistance at 0.9320 and then 94 cents. Under 0.8916 then it is 0.85 and then eventually 0.8229.
Looking briefly at USDJPY it is getting a lift back toward 101.70 and above that 103.
The strength of non-farm payrolls on Friday night was enough to get stocks to concentrate on the recovery rather than the taper and the Dow closed up 147 points or 0.98%, the Nasdaq was 1.03% with the S&P 500 up the same amount for a rise of 17 points.
As you can see in the chart above of the S&P 500 the rally at the moment is still consistent with an overall 2 month downtrend and we are likely to get a chance to see it the trendline resistance is going to hold or not in the next week based on the momentum build Friday. A break of 1640 would be very bullish for stocks and a rejection just returns focus to support at 1590.
In Europe the rally of Thursday was unwound Friday to a large extent Friday as the strength of US non-farm payrolls seem to have spooked the market. The fact that the US in the end closed higher probably bodes well for a rally tonight but it is interesting to see the different recent on either side of the Atlantic. At the close the FTSE was 0.71% lower, the DAX tanked 2.36%, the CAC fell 1.45% and the Milanese and Madridian stock markets were around 1.7% lower.
Gold lower, crude higher
Commodities were a story of US dollars and Middle Eastern tensions as gold came under attack once again closing at $1222 oz down almost 2.5% but Crude rallied by 2% as tensions in the Middle East and the huge draw in the US this week saw it close at $103.63 Bbl. This is not a good sign for the US economy if this rise is sustained.
Perhaps this is something that Dr Copper has recognised because it was off 2.96% at $3.08 lb.
Today sees ANZ job ads which I thought were out last Friday but it is German trade and production data Monday night I will be watching closely and which I expect to knock the Euro for six. Draghi is also speaking.