Stocks Gain on Increased Demand for Risky Assets

James Hyerczyk from ForexHound.com at 01/09/10

U.S. equity markets erased earlier losses triggered by the weaker than expected U.S. Non-Farm Payrolls Report to close higher for the day.  Traders reacted 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.  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 bearish U.S. jobs data report but the markets could not hold on to their gains. Traders bought March Treasury Bonds and Notes on the thought the Fed will continue to refrain from hiking rates for several more months. Late in the session, March Treasury Bonds weakened as traders realized the government may have to spend more money to create jobs. If this market is going to accelerate to the upside, then traders will have to get aggressive following a breakout over 116’05.

February Gold traded 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 helped to limit upside movement in the March Crude Oil. 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 finished sharply lower on Friday 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.

Economists were looking for December Non-Farm Payrolls to rise by 10,000.  Most came to this conclusion because of weekly initial claims and other employment index reports. However, the ADP jobs data report which was released earlier in the week showed that 84,000 were lost in the private sector.  Today’s report which included both the private and government sectors lost 85,000 jobs.  This leads one to speculate 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 following the U.S. jobs data report.  This bullish move erased an earlier loss triggered by an overnight report which 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 but was only able to settle inside a retracement zone at 1.5988 to 1.6036. Uncertainty over the upcoming general election most likely limited today’s upside action. Traders remain concerned about the budget deficit and other fiscal issues.

The bearish U.S. jobs picture helped strengthen the March Japanese Yen.  In addition, the Japanese Finance Minister retracted statements he made yesterday regarding his desire for a weaker Yen. Technically, the Japanese Yen tried to regain a key 50% number at 1.0825.  Rallying back over 1.0818 will be the first sign of real buying power. The weekly closing price reversal bottom indicates the start of a possible rally to 1.1223 - 1.1351.

Based on the short-term range of 1.0090 to .9527, traders should look for the March Swiss Franc to strengthen into .9806.  Regaining this level is likely to trigger a further rally to .9873.

The March Canadian Dollar resumed its 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 helped to underpin the market. Upside momentum could slow if the Bank of Canada starts to talk about the need for a weaker currency.