Dollar Trades Flat Ahead of U.S. Non-Farm Payrolls
The U.S. Dollar and equity markets traded in a relatively
tight range overnight ahead of this morningâ€™s U.S. employment report.Traders are looking for an improvement today
from the November report.Guesses are
for a job loss of â€śonlyâ€ť 125,000 and for the unemployment rate to hold steady
at 10.2 percent.There is some debate as
to whether this is the low for the unemployment rate.At this time the consensus agrees the rate
will stay the same this month, but is likely to rise to 10.5 percent by the end
of the first quarter 2010.
Equity markets are expected to drop sharply if the jobs loss
figure comes out well above the guess or if the unemployment rate rises.
Yesterday there was evidence that the Dollar and the stock market were
decoupling.In my opinion, a better than
expected jobs number will trigger a rally in the Dollar but not necessarily the
Ask most economists if the unemployment rate is a lagging or
leading indicator, and they will tell you it lags the economy.At this time, I think traders are looking at
the unemployment rate as a â€śpseudoâ€ť leading indicator.This is why I believe the Dollar will benefit
the most from a better than expected figure.
On Thursday, stock index futures ended the day lower after
bids were pulled late in the session allowing the market to plunge to new
session lows.Although the December
E-mini S&P 500 made a new high for year, the inability of the Dow and
NASDAQ futures to follow-through to the upside created a bearish divergence
that helped weaken the market throughout the day.
At the time the S&P was making its high, the Dollar was
weakening but not making new lows.This
made traders nervous since the driving force behind the 9 month rally in the
equity markets has been the weaker Dollar. Many traders got trapped on the long
side of the market yesterday morning following a gap higher opening and a
friendly initial claims report.The gap
opening was triggered by aggressive Asian buying following Wednesdayâ€™s late
session report that Bank of America was going to pay back its TARP money.
Although the main trend is still up in the equities and some
will say it was position evening ahead of tomorrowâ€™s U.S. Non-Farm Payrolls
Report, yesterdayâ€™s failure and subsequent break looks a little more
bearish.The outside move down so close
to a major 50% retracement level in the S&P at 1122.00 makes one wonder if
this was the final leg up.A trade
through 1077.75 will officially turn the main trend down on the daily chart,
but a trade through Thursdayâ€™s low at 1097.50 today will confirm the reversal
top and give traders the first clue that a top has been formed.
Traders should pay particular attention to last weekâ€™s close
at 1089.50 today.This price may be
tested early in the trading session if weakness develops after the Non-Farm
Payrolls Report, but this price will have more significance on the close.
Yesterday, March Treasury futures had little reaction to the
sell-off in the equities.The stronger
initial claims report earlier in the session basically took control of the
markets by pushing up demand for higher yields.Fixed income futures treaded water most of the day ahead of todayâ€™s U.S.
employment report.The March Treasury
Bonds settled right on a 50% price at 120â€™06.This price is likely to control the short-term direction of the market
today. Downside pressure could arrive late in the session as investors may
begin to look ahead to next weekâ€™s $74 billion Treasury auction.
The U.S. Dollar Index withstood another test of the low for
the week at 74.31 and last weekâ€™s low at 74.27 on Thursday.The higher close was impressive, but this
market is still lower for the week. Overnight action has been mixed but strong
upside momentum could trigger a challenge of last weekâ€™s close at 75.04.If you want to be safe about the long-side,
it is suggested that you wait until this market clears 75.66 before considering
Yesterday, the December Euro rallied early in the session
following the announcement from the European Central Bank that it would begin
withdrawing its stimulus money from the Euro Zone economy, but backed-off last
weekâ€™s high at 1.5144 when ECB President Trichet called for a stronger Dollar.
This price remains the strongest resistance at this time.Weakness could push this market back to
The December British Pound is rallying ahead of this
morningâ€™s U.S. Non-Farm Payrolls Report.Traders are expecting a choppy, two-sided trade over the next few days
as market participants adjust positions ahead of next weekâ€™s Bank of England
meeting.Early calls are for interest
rates to remain unchanged and for the BoE to maintain its asset-buyback
plan.Yesterday, worries over a
weakening economy helped to pressure the December British Pound, but there is
still not enough evidence to say that a secondary lower top has been
The December Japanese Yen is trading in an inside range
overnight with a slight bias to the downside.On Thursday, the Yen traded lower for a third straight day.Earlier in the week, the Bank of Japan
announced another stimulus plan designed to promote economic growth.Pressure could be on this currency until
December 17th when the BoJ holds its formal meeting.Traders are nervous about holding long positions
because of the possibility of an intervention.Currently, this market is testing a major 50% price at 1.1307.There could be a technical bounce to the
upside from this level, but a failure to hold could trigger a further decline
The December Canadian Dollar is mounting a strong comeback
ahead of this morningâ€™s U.S.
and Canadian Employment Reports, but it still remains inside of a key
retracement zone at .9574 to .9505.Trichetâ€™s call for a stronger Dollar helped pressure the December Canadian
Dollar yesterday, but the most bearish influence came from lower equities and
flat crude oil.
February Gold fell sharply overnight in a follow-through
break following yesterdayâ€™s weak close.Upside momentum seems to be slowing with most of the buying this week
coming from overnight purchases in Asia and Europe.New
York traders seem to dislike the upside at current
levels.Last nightâ€™s action has made
$1227.50 a new minor top.Bullish
traders should get nervous if this market finishes the week under $1175.50.
March Crude Oil closed lower on Thursday and last nightâ€™s
subsequent break has helped form a new main top at 81.52.The current chart pattern suggests that this
market should break back to at least 78.20 to 77.42.The supply/demand fundamentals already
suggest lower prices, but it will take weaker equity markets and a stronger
Dollar to send this market sharply lower.
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