Stocks Finish Higher as Traders Anticipate Bullish Employment Numbers

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

Equity markets erased earlier losses after the release of the U.S. Weekly Initial Claims Report to finish higher for the day. Trading was light, but nonetheless, today’s strength is probably a good indication that investors feel that Friday’s report will be better than preliminary estimates.

Treasury futures traded mixed but inside of their recent ranges as investors were reluctant to position themselves in front of Friday’s U.S. Non-Farm Payrolls Report.  Trading was been light and directionless most of the day. The current range for March Treasury Bonds is 114’16 to 116’05.  March Treasury Notes have fallen into a range between 114’28 to 116’08.

February Gold was under pressure throughout the trading session because of the stronger Dollar. The current chart formation suggests a possible pull-back to $1108.10 - $1100.34.  Downside momentum will depend on how strong the Dollar gets.  The main trend is still up, however, with $1151.30 a key objective on the upside.  Thursday’s weakness was most likely profit-taking ahead of Friday’s employment number.

March Crude Oil closed lower as traders dumped commodity related contracts because of the rate hike in China and greater demand for safe-haven assets.  By raising interest rates, China hopes to curtail excessive lending practices and cool off the economy.  Traders trimmed their recent long positions on expectations of a drop in demand for crude oil. Technically, this market is vulnerable to the downside with potential targets at 78.80 and 77.56.

The U.S. Dollar held on to most of its gains as traders await Friday’s U.S. employment report. On Thursday, the Weekly U.S. Initial Claims report showed that fewer workers filed for unemployment benefits last week.  This news helped boost an already strong Dollar. The ability to hold on to its gains into the close may be an indication that investors are anticipating a friendly U.S. Non-Farm Payrolls Report tomorrow. Volume has dropped off noticeably which is a strong indication that the ranges for the day have been made.

The U.S. Dollar erased early overnight losses to move higher after China shocked the Forex markets with a surprise hike in interest rates. China’s move to curb excessive lending and curtail price increases drove traders into lower yielding, safe haven currencies.  China’s central bank sold 3-month bills at a higher interest rate for the first time in 19 weeks.

The March Euro traded lower throughout today’s session as demand for higher risk assets dropped following the rate hike in China.  At the close, the Euro was hovering near a retracement zone at 1.4350 to 1.4319.

The top-heavy March British Pound continued to erode support overnight. Further downside pressure was triggered after the Bank of England announced that interest rates would remain at 0.50% while leaving its asset purchase program in check.  Overnight selling pressure took out weak longs who were trying to establish support at a retracement zone at 1.6036 to 1.5988. If selling pressure continues tomorrow, the most obvious downside objective is the recent bottom at 1.5825.

Trumping the BoE meeting was the on-going heated debate over the budget deficit.  Prime Minister Gordon Brown and Conservative opposition leader David Cameron are currently engaged in a heated discussion on how to handle the growing budget difficulties.

Bearish comments from the new Japanese Finance Minister helped trigger a sharp break to the downside in the March Japanese Yen overnight.  In addition, the friendly Weekly U.S. Initial Claims number drove this contract to a four-month low.  Overnight Naoto Kan said he wanted to see a weaker Yen.  This announcement is leading traders to believe Japan may be more inclined to stem any sharp rise in its currency.  Kan feels that his job will be to keep the Yen at an “appropriate level”.  This is necessary to sustain demand for Japanese exports.

Technically, the March Japanese Yen should remain weak as long as this market can remain under the downtrending Gann angle at 1.0693 tomorrow.  Based on the main range of .9876 to .1.1774, traders should look for a retracement to 1.0825 to .1.0601 over the near term.

The stronger Dollar is helped pressure the Swiss Franc. Today’s closing price reversal suggests that a new lower top has been formed at .9766  Based on the short-term range of .9522 to .9766, traders should look for a minimum retracement to .9640 - .9612.  Taking out this zone should trigger an acceleration to the downside.

The March Canadian Dollar continued to weaken after a slightly lower opening.  Today’s closing price reversal indicates that a short-term top has been reached which could trigger a minimum 2 to 3 day break. The current chart formation indicates a possible break to .9510 - .9461 over the near-term. Weaker gold and crude oil prices will continue to pressure this market.