Stocks Steady after ECB, BoE Rate Decisions; Focus Remains on Jobs Data
equity markets are trading flat in limited trading despite rallies in the Euro
and British Pound. Earlier in the week, strength in both of these markets
triggered rallies in stocks as traders demanded risky assets.
Earlier this morning, the European Central Bank and Bank of
England policymakers voted to leave interest rates unchanged. Stocks failed to
move on the news as it was already priced into the market. The press conference
by ECB President Trichet could move the markets, if he announces an exit
strategy now that it appears the Euro Zone economy is on the road to recovery.
Stocks firmed late Wednesday after trading in a tight range
throughout the day following a good ADP employment report. Today another piece
of the employment puzzle will be revealed in the form of weekly initial claims.
Both of these reports are leading up to Fridayâ€™s Non-Farm Payrolls Report.
Early guesses are for this report to show a decline of 65,000 to 90,000 jobs.
The Fed will also be watching this report closely as it will be a strong
determinant in next weekâ€™s monetary policy decision.
After an early reaction to the initial claims report, volume
may dry up today ahead of tomorrowâ€™s big report, leading to a choppy, sideways
Treasury futures are at a key juncture on the charts.
Yesterday the September T-Notes made a new high for the year as yields plunged.
The lower close, however, helped form a closing price reversal top which could
lead to the start of a 2 to 3 day break.
September Treasury Bonds also had a reversal down, but the
pattern suggests the possible formation of a bearish secondary lower top
Although the Fed is expected to keep interest rates low and
may implement another round of quantitative easing, sentiment has shifted
toward risky assets, putting pressure on the lower yielding Treasuries.
December Gold is trading flat this morning, following a
strong five day rally. The main trend is still down despite the rally with the
market stopping short of taking out the recent main top at $1207.50. A move
through this price will turn the main trend to up. If weakness develops today,
then look for the start of a correction back to $1182.40 over the near-term. At
this price level, traders will have to decide whether to form a secondary
higher bottom or resume the downtrend.
On Thursday the Bank of England policymakers voted to leave
its benchmark interest rate at the historically low 0.5%. This move was
expected because BoE officials are still unsure what the effect the newly
implemented austerity measures will have on the economy. Furthermore, there is
still uncertainty over what the upcoming new taxes will have on economic
growth. Some investors feel the central bank will have to remain flexible with
its monetary policy in case the developing economic recovery stalls.
Lately the British Pound has been trending higher, reaching
a major retracement zone. Most of this move has been driven by speculators
looking for improvements in the U.K.
economy while the U.S.
economy falters. The recent Second Quarter GDP Report was better than expected;
leading some investors to believe the economy is on the road to recovery.
Skeptics cite the fact that this reading took place before the austerity
measures were implemented.
High inflation has also had investors worried. One of the
challenges for the Bank of England will be controlling inflation without
stifling growth. Uncertainty over how the BoE intends to do this may limit
gains and could begin to put pressure on the Sterling.
Technically, the British Pound found resistance at a key
.618 retracement level earlier this week at 1.5967. Holding this level could
trigger the start of a break back to 1.5635. Overnight the Sterling traded below 1.5884, putting this
currency lower for the week. The market bottomed early in the trading session
and put in a short-term top shortly after the central bank announcement.
Although the Pound is trading higher shortly before the New York opening, gains
could be limited as traders stand aside ahead of tomorrowâ€™s U.S. Non-Farm
Payrolls Report. This report will offer more insight into the state of the
economy and influence the Fedâ€™s monetary policy decision at next weekâ€™s FOMC
meeting. There is speculation that the Fed will renew its quantitative easing
program. This along with low interest rates could keep downside pressure on the
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