ALL EYES ON US EMPLOYMENT, CRUDE REVERSES MONDAY'S 3% MOVE UP
(As of approximately 12:00 GMT WEDNESDAY, 7:00 am EST)
1. Most instruments trading within tight ranges established over the past 8 weeks on the daily charts awaiting clarification on the world economy
2. Thursday's much anticipated US unemployment figures may be the next big clue-but did the earlier ADP figures spoil the suspense?
3. Trade of the Week: Crude Oil moves up 3% Monday, reverses the move over Tuesday and Wednesday
Introduction: Jobs & Oil
Forex, commodities, and stock indices have mostly remained in tight trading ranges on their daily charts, reflecting fundamental uncertainty about the state of regional and international economies. The next big clue may be this week's much anticipated main event: the US Bureau of Labor and Statistics two key monthly employment reports:
· Non-Farm Employment Change and
· Unemployment Rate for the past month
Of course, trading in tight channels can be as exciting and profitable as strong trends, as we've seen this week with oil (see below). Nor were all instruments range-bound, as we'll see with the EUR/GBP.
The EUR/GBP recently broke to new lows for 2009 but has been rebounding strongly for the past three sessions from around 0.8440 to 0.8616 as of this writing, a move of over 2%. At 200:1 leverage, that's a 200% profit in 72 hours in a so-called "trendless" market. Here's EUR/GBP the daily candlestick chart.
EUR/GBP Daily Chart – Moves over 2% in less than 3 days sh7
As noted in yesterdays market update, the AUD/USD is near highs for the year.
However, Wednesday's very disappointing monthly ADP Non-Farm Employment Change report (-473k vs. -388K forecasted) and Change in Pending Home Sales (0.1% vs. 0.7% forecasted) has already sent the pair into a mild retreat. Similar gloom from Thursday's unemployment figures could potentially create enough fear/risk aversion to send the comparatively risky AUD lower against the safer USD, especially if stock markets drop on the news. The likely low volume trading in New York due to the early Fourth of July holiday weekend may amplify volatility.
Could a positive surprise on US employment do the opposite?
World Stock Indexes
Asia opened Wednesday trading (which begins in Sidney on Tuesday night for the West) mixed, with the Nikkei up others down. Europe closed strongly up over 2%, and the US markets had 0-0.5% gains, with the S&P printing another cross-shaped DOJI STAR on its daily candlestick chart, reflecting indecision ahead of Thursday's unemployment data. Asia opened Thursday's trading (again, in Sidney on Wednesday night for the West) down generally between -0.5--1.35%, and as of this writing the major European equities markets are similarly down. Note that dojis on June 10-11, 19, and 23 all forecasted significant moves. Do note, however, that like any candlestick formation, it's just one clue that must be evaluated in the context of many others before one can form an opinion.
Overall, however, global stock indexes, like currencies and commodities, continue to oscillate within multi-week trading ranges as they await market moving news to define a clear theme in the news of either optimism or pessimism.
If Wednesday's US employment and housing data foretell similar disappointments in US jobs on Thursday, more red ink might flow from the US stock indexes.
Thus stocks overall are still holding near their 20%-30% gains since March, despite an apparent lack of data suggesting a similar improvement in employment, earnings, GDP, or any other significant economic measure within the coming year.
Retaining these gains may become harder over the coming weeks unless there are positive earnings or other economic news to justify these gains. Positive earnings will be especially needed from the financial sector, which has been the source of both major declines and rallies for the past two years.
Guidance on second quarter earnings should begin to come out next week, and may well bring markets the direction they seek. Especially important will be financial sector earnings, for these have been the catalyst of all major market moves over the past two years.
Crude and Gold have similarly stuck to multi-week trading ranges. As the below chart shows, crude has moved up about 3% then retraced the full range on Monday and Tuesday, providing nimble traders ample profit opportunities in either direction. Trading in a channel does not always suggest lack of volatility.
Our near term outlook remains unchanged. Given that risk-appetite favored assets like stocks, commodities and higher risk currencies like the AUD and NZD are still near 2009 highs despite considerable uncertainty that there will be meaningful growth to match their rise, here are two outcomes to consider in the coming months.
1. These may be vulnerable to a retest of March lows.
2. However, a continued longer term range trading might also provide the needed consolidation period for the recovery to catch up.
Given the amount of potentially very bad news for the financial sector, many would suggest you prepare for the first scenario, but pray for the second.
Of course, since this view is not uncommon, given the low volume trading ahead of July 4th, don't be shocked if traders try to fade this sentiment and the Markets repeat Monday's unexplained rise.