Treasury Bonds Finish Lower after Strong Weekly Gains
September Treasury Bonds posted a loss on Friday, most
likely tied to profit-taking ahead of the long holiday week-end and the lack of
selling pressure on the equities. Fridayâ€™s action appears to be just a
temporary slow down in the trend. The weakening economy is likely to continue
to underpin the Treasuries.
August Gold weakened this week driven lower by the
possibility that a slow down in the global economy will lead to deflation.
Pressure could continue on gold next week if traders continue to unwind the
Long Gold/Short Euro spread. The charts indicate there is room for another $60
break to the downside.
stocks rallied initially after the release of the U.S. jobs report but this may have
been because traders priced in a worse than expected private-sector hiring
figure. Nonetheless, the private-sector number missed the consensus so this
short-fall is likely to lead to selling pressure at some point during the
Traders still look a little confused as to what to do with
the jobs data. Short-term traders seem to want to rally the market because of
technically oversold conditions. Longer-term traders are looking at the bigger
picture which leans toward a weaker U.S. jobs outlook for the upcoming
Expect volatility today because of the expected clash
between short-term traders and long-term investors. Donâ€™t be surprised by a
strong short-covering rally because of oversold conditions and position
liquidation ahead of the three-day holiday.
Like equity traders, September Treasury Bond and Treasury
Note traders seem to be searching for something concrete from the jobs report
to base their trading decisions. The first reaction was to rally Treasuries
following the release of the bad jobs data, but there hasnâ€™t been much of a
follow-through to the upside following the initial surge. This muted reaction
could be because investors may have already priced in the bad number.
The U.S. Dollar finished mixed after disappointing jobs data
from the private sector reignited thoughts that its economy was headed toward a
Friday bearish employment report capped a bad week for the
Greenback as it came on the heels of a rise in weekly U.S. Initial Jobless
Claims on Thursday along with a fall in home sales and a weak reading of a key
This weekâ€™s negative reaction to the Dollar was in contrast
to the recent trading pattern which showed a tendency toward flight to safety
buying by investors following weaker U.S. economic news. Traders in the
past had treated bad U.S.
economic news as a bump in the road to recovery but the recent string of bad
news has led investors to believe that a weaker trend is developing in the
Coming into Fridayâ€™s trading session; investors were looking
for total jobless claims to fall 130,000. The actual number was -125,000. More
important to investors however was the number of private-sector jobs created.
Pre-report estimates were for an increase of 115,000 jobs in the
private-sector. The actual hiring by the private sector was 83,000 jobs. This
number was disappointing to traders. This report suggested that the pace of
hiring was slowing, giving more evidence to speculators who believe the
recovery has stalled and that the economy is heading south once again.
By contrast, the economic woes in the Euro Zone seemed to
have settled down. Given time to allow the European Central Bank and
International Monetary Fund financial aid to trickle down into the economy,
traders now seem to believe that perhaps the September Euro is undervalued.
What this weekâ€™s rise in the Euro against the Dollar is
indicating is that perhaps the austerity measures enacted in the Euro Zone will
provide for a much faster recovery while the â€śspend now, pay laterâ€ť plan of the
United States is failing to yield any concrete results.
Technically, the Euro formed a secondary higher bottom at
1.2151, providing the base for a huge breakout rally to the upside. The
subsequent rally following a test of this low accelerated to the upside once
tops at 1.2397 and 1.2467 were taken out on Thursday. Further upside movement
was triggered by a break out above two downtrending Gann angles which had held
back all advances since April.
Although some bears still believe it is the weak U.S.
economy rather than a strong Euro Zone economy that is driving this market
higher, weak short have nonetheless been forced to cover positions. The real
indication as to whether this weekâ€™s rally was fresh buying or short-covering
will be known once the Commodity Futures Trading Commission releases its weekly
Commitment of Traders Report. If net shorts drop and net longs rise, then
investors will treat this as a sign that the tide may be turning.
Given the current upside momentum, it appears the Euro has
enough buying power behind it to drive higher to the next major retracement
cluster at 1.2782 over the near term.
Looking at both the September British Pound and the
September Euro it appears that countries making the hard decision to cut
spending and invoke austere financial measures are the investor favorites at
this time. The commodity-linked Canadian Dollar, Australian Dollar and New
Zealand Dollar could be the currencies looking at downside pressure should
demand for higher risk equities and currencies continue.
The daily chart for the British Pound looks very impressive.
The weekly chart however holds the key to the long-term trend in the Sterling. While the main
trend is up on the daily chart, the weekly chart still has resistance in the
form of a main top at 1.5523.A breakout
over this level will turn the main trend to up on the weekly chart. The first
objective of this current rally is 1.5635 which represents a 50% retracement of
the break from the April top at 1.7042 to the May bottom at 1.4229.
The September Australian Dollar broke sharply most of the
week as demand for commodities and equities plunged. Currently the Aussie is
trying to establish a higher bottom at a retracement zone at .8469 to .8378 but
this area is not likely to hold if U.S. equity markets canâ€™t rally out
of the hole theyâ€™ve dug.
News that Chinaâ€™s
economy may be slowing down is helping to put additional pressure on the
Australian Dollar. If Chinaâ€™s
economy weakens further then expect it to take the Australian economy with it.
The next two weekâ€™s will be critical to the U.S. Dollar now
that the key economic reports are out of the way until stock market earningâ€™s
season begins around July 15th. Investors will still be mulling over
data but will also be watching to see the results of the European bank stress
tests. Speculation about the results of these tests could drive up volatility
in the Euro.
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