Equity Markets Recover after Earlier Weakness

James Hyerczyk from ForexHound.com at 01/08/10

 

U.S. Equity markets erased earlier losses triggered by a weaker than expected U.S. Non-Farm Payrolls Report. Traders were reacting to the fact that the U.S. employment situation is still indicating a weak recovery. The markets turned around, however, as investors saw the break as a buying opportunity. As the Dollar fell, traders bought up stocks as demand for higher risk assets picked up steam. Traders now feel that a hike in interest rates by the Fed is a long way off and the best investment opportunities are in the equity markets.

Treasury futures rallied following the release of the less than friendly U.S. jobs data report. Traders are buying March Treasury Bonds and Notes on the thought the Fed will continue to refrain from hiking rates for several more months. Traders should watch for an acceleration to the upside in March Treasury Bonds following a breakout over 116’05.

February Gold is trading higher because of the weaker Dollar. Traders should watch for an acceleration to the upside following a trade through $1141.00. This move is likely to trigger a continuation of the rally with $1151.30 the first major upside objective.

The weaker than expected jobs data report is helping to limit upside movement in the March Crude Oil. The stronger Dollar is helping to limit gains. Traders also feel that a slowing economy will led to less demand for crude oil. Technically, this market remains vulnerable to a retracement to 78.80.

The U.S. Dollar broke sharply this morning following the release of a U.S. Non-Farm Payrolls Report which showed the economy lost 85,000 jobs in December. This bearish number surprised traders who were looking for evidence that the U.S. economy stopped losing jobs in December.

Based on pre-report estimates, economists were looking for December Non-Farm Payrolls to rise by 10,000. The unemployment rate was also expected to rise to 10.1% from 10.0%. The actual report missed estimates badly while the unemployment rate rose to 10%.

The ADP jobs data report which came out earlier in the week showed that 84,000 were lost in the private sector. Today’s report which includes both the private and government sectors lost 85,000 jobs. This leads one to conclude that either the government has to start hiring, or it has to begin spending more money to create jobs in the private sector.

The March Euro rallied higher following the U.S. jobs data report. This came after an early morning report showed that the Euro Zone unemployment rate reached 10% in November. Regaining of the retracement zone at 1.4350 to 1.4319 is a sign of strength. Upside momentum could be building which sends the Euro back to 1.4680 - 1.4799 over the near-term.

The March British Pound surged to the upside after regaining a key 50% price level at 1.6036. Holding this number is an indication of higher prices but the key retracement number to watch is 1.5988. This is an uptrending Gann angle. Uncertainty over the upcoming general election is most likely limiting today’s upside potential. Traders remain concerned about the budget deficit and other fiscal issues.

News that the U.S. economic jobs picture is not indicating an improving economy helped strengthen the March Japanese Yen. This news is likely to slow down the downside momentum, but not the down trend. Technically, the March Japanese Yen regained a key 50% number at 1.0825. Closing back over 1.0818 will be the first sign of real buying pressure. A closing price reversal bottom today could start a rally back to 1.1223 - 1.1351.

The weaker Dollar is helping to underpin the Swiss Franc. Based on the short-term range of 1.0090 to .9522, traders should look for a minimum retracement to .9806 - .9873. At the mid-session the lower end of this retracement zone is holding as resistance, watch for an acceleration to the upside once this price is penetrated.

The March Canadian Dollar resumed the uptrend following the bearish U.S. jobs data report. The current chart pattern suggests that the next upside target is .9740. Stronger gold and crude oil prices are helping to underpin the market. Upside momentum could slow if the Bank of Canada starts to talk about the need for a weaker currency.