U.S. Equities Plunge on Risk Fears and Weak Employment Report
stock indices plunged sharply lower before the opening propelled by a quick
drop in the Euro and a weaker-than-expected U.S. employment report. The drop in
the Euro triggered a flight to safety rally into the U.S. Dollar while the
employment report raised concerns about a slowdown in the U.S. economy and the possibility
that corporate profits may take a hit if the global economy slows down.
The main trend turned back down in the June E-mini S&P
500 when the market crossed the last main bottom at 1067.25 before settling
slightly better than a minor Fibonacci retracement level at 1067.25. Further
weakness in the Euro is likely to push this market lower towards the last major
swing bottom at 1036.75.
The loss was substantial in the June E-mini NASDAQ but the
market still managed to hold a test of the minor retracement zone at 1829.50 to
1811.75. The Dow closed sharply lower and further downside action was indicated
by the close under the retracement zone at 10032 to 9967.
The drop in U.S.
equity markets helped send the September Treasury Bonds sharply higher as
traders left higher risk assets for the safety of the Treasury markets.
Technically this market tested the retracement zone created by the last minor
swing down at 126â€™05 to 121â€™06. This zone is at 123â€™22 to 124â€™08. The close
over the high end of this retracement zone indicates that investors are
expected further downside action in the equity markets.
Selling pressure dominated the September Crude Oil market on
Friday. This market is still in a downtrend and currently testing a minor
retracement zone at 73.64 to 72.69. Increased aversion to risk is encouraging
traders to abandon higher risk assets, putting pressure on the crude oil complex.
This scenario is likely to continue next week if the Euro falls substantially
again and equity markets remain weak. The weaker than expected jobs data report
could be a sign that the global economic recovery is stalling. This will hurt
demand for crude oil.
August Gold finished higher after earlier weakness under
volatile trading conditions. Gold was under pressure early in the session as
the Dollar strengthened following the release of the weaker-than-expected jobs
report. After hitting its low about 90 minutes after the report, speculators
began to buy gold in anticipation of serious problems developing in the Euro
Zone. Investors have renewed their buying interest on concerns that the
acceleration of fiscal problems in the Europe
may lead to the withdrawal of one or more members of the European Union or a
collapse in the single-currency.
The weaker-than-expected U.S. employment report helped
trigger a flight-to-safety rally in the Dollar while driving investors out of
commodity-linked currencies. Aversion to risk weakened U.S. equity and global commodity
markets, helping to drive up demand for the lower-yielding Japanese Yen. All three major commodity-linked currencies â€“
Australian Dollar, New Zealand Dollar and Canadian Dollar â€“ suffered huge losses,
leading to speculation that this trend is likely to continue next week.
The U.S. Dollar Index made a new high for the year, boosted
by the sharp sell-offs in the Euro, British Pound and the commodity-linked
currencies. Gains were limited slightly by the rise in the lower-yielding
The initial catalyst behind the U.S. Dollarâ€™s rise on Friday
was the news that Hungary
is in the midst of a fiscal crisis of its own. This news caught many traders by
surprise because most were focused on the upcoming U.S. Jobs Data Report.After the first thrust to the upside, gains
were extended when the government reported that the number of jobs created
during May fell far below the consensus.
Economist estimates were for an increase of about 513,000
new jobs. The U.S. Labor Department reported an actual increase of 431,000.
This news was bearish in itself, but the traders were really surprised when the
internals of the report showed that of the 431,000 new positions, 411,000 jobs
were created by the U.S.
government. This figure was primarily made up of short-term census workers.
The June Euro pierced the psychological 1.20 support level,
sending the single-currency to a 4-year low. The began its slide early Friday
morning, driven lower by fresh fiscal problems from Hungary and a weak U.S.
payroll figure. Concerns about Hungaryâ€™s
fiscal situation initiated the break before the New York
opening, while the U.S.
jobs data helped accelerate the move to the downside. The market weakened
throughout the day as traders shied away from risky assets, instead favoring
the safety of the U.S. Dollar.
Technically the Euro remains in a downtrend. Fridayâ€™s move
to the downside was likely sell stops following the initial plunge and fresh
selling once traders became convinced the U.S. jobs data was bearish and the
intra-day tone would remain bearish for the duration of the day. The
longer-term monthly chart suggests the next likely downside target is the
November 2005 bottom at 1.1638. Bearish traders are likely to defend the old
bottoms at 1.2153 and 1.2143 in order to keep the pressure on the market.
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