Friendly Jobs Data Underpins Equity Markets

U.S. equity markets mounted a strong recovery following the news that the unemployment rate dropped unexpectedly. Although the number of jobs loss was greater than forecast, the improvement in the jobless rate helped confirm that the economy is on the road to recovery. Fear over sovereign debt issues in the Euro Region most likely limited gains.

U.S. equity markets mounted a strong recovery following the news that the unemployment rate dropped unexpectedly. Although the number of jobs loss was greater than forecast, the improvement in the jobless rate helped confirm that the economy is on the road to recovery. Fear over sovereign debt issues in the Euro Region most likely limited gains.

March Treasury Bonds remained firm despite the good news on the jobless market. The stronger Dollar and demand for safety helped provide the support. The charts indicate that this market will have an upside bias as long as 118’24 holds as support. Near term resistance is 119’24. A weakening in Treasuries next week will signal that traders are focusing on the economic outlook rather than risk sentiment.

The stronger Dollar pressured April Gold early in the trading session, however, oversold trading conditions helped boost this market into the close. Overnight action broke gold to a 50% level at $1052.30 before shorts began covering. The chart indicates there may be a snap back rally to $1085.40 before new resistance is formed.

March Crude Oil accelerated to the downside after a pair of bottoms at 72.53 and 72.43 was broken. The market continued lower until it reached near term support at the lowest level since October. A stronger Dollar is likely to keep pressure on this market however, technical factors indicate this market may be nearing oversold levels.

The trading week ended with traders still fearing a widening and deepening debt situation in the Euro Region. Optimistic traders are looking for some solution to be reached by either a “pseudo-bailout” by the European Central Bank or European Union. Legally, the ECB or EU cannot offer an outright bailout package so they may have to figure out a way to get around this restriction.

The International Monetary Fund was mentioned as a suitor but it was awfully quiet this week. Pessimistic traders are looking for the situation to escalate to Portugal and Spain, putting additional pressure on the Euro in the short-run. If a solution is reached over the week-end, then the Euro is likely to open sharply higher as shorts will pay anything to cover positions.

The Dollar had a volatile day before settling sharply higher for the week. Early in the session, the U.S government reported that another 20,000 jobs were lost last month. Expectations were for a 25,000 to 40,000 increase. A surprise drop in the unemployment rate from 10.0% o 9.7% shocked the market, triggering a wild intraday move.

After the report the primary focus of traders returned to Greece’s deficit problem. Demand for safer assets rose and the Dollar was able to post an 8-month high. This trend is likely to continue next week. Traders fear that the debt issues in the Euro Region are deepening. Therefore demand for less risky assets will continue to rise.

The GBP USD finished the week sharply lower. Risk aversion and a weak economy are pressuring this pair. Earlier in the week, the Bank of England left interest rates unchanged and voted to end its quantitative easing program, however, it left the door open for further stimulus if deemed necessary.

Fear drove traders into the Japanese Yen, thereby weakening the USD JPY for the week. Friday’s down move was muted by the friendly U.S. jobs report, triggering a light short-covering rally. The USD JPY has room to the downside and trader talk is saying the Bank of Japan has no plans to weaken the Yen. Choppy conditions will prevail, however, if U.S. economic news continues to come out better than expected.

The weakening Euro and news that the Swiss National Bank intervened to defend its currency against the Euro and to prevent deflation helped lead to a higher finish in the USD CHF. Continued weakness is expected to pressure the Swiss Franc. The SNB is expected to continue to aggressively defend its currency against a rapid rise and extreme volatility.

The USD CAD closed up for the week, but lower on Friday. Weak gold, crude oil and equities underpinned this pair all week, but Friday’s slight recovery in stocks and gold help to limit losses.

The AUD USD and NZD USD finished the week sharply lower. The news, that the Reserve Bank of Australia held interest rates in check at its last meeting ignited weakness earlier in the week. Lower demand for higher yielding assets fueled a massive liquidation later in the week. Friday’s daily closing price reversal indicates a possible short-term bottom. Watch for a follow-through rally to confirm the short-term bottom on Monday.

Risk aversion and weak economic reports pressured the NZD USD throughout the week, but Friday’s closing price reversal bottom indicates oversold conditions may trigger the start of a short-covering rally.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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