What a wild and crazy last day we have had in the run up to the non-farm payrolls in the US tonight.
After Mario Draghi’s rubbish about a recovery (see Delusional Economics piece here) and a clear signal that the ECB is in no rush to pull its head out of the sand, the euro caught a solid lift putting the US dollar under acute pressure.
This US dollar weakness was mirrored in strong gains in the yen, GBP, Swissie and Aussie it seems as well from concerns that the non-farm payrolls data tonight is going to be on the weak side and as such we have seen a big unwind in the “taper” talk induced US dollar strength of the past few weeks.
Stocks in the US were also higher on the back of this same concern and this simply underlies what a ludicrous situation we have in markets at the moment that everything is still about free money and endless stimulus. So tonight’s trade data in Germany, France and the UK is an important pointer to global growth but the non-farm payrolls will be the scene setter. The market is looking for 165,000/170,000 but last night suggests trader are looking for something lower and I’m guessing also on a lower number of around 120,000.
At the close in the US the S&P was up 14 points or 0.88% to 1,623 after making a low of 1,598. The Dow was up 0.54% to 15,041 and the Nasdaq rose 0.66%. As you can see in the chart below the trend line has been rising as time goes by and the low last night was right on the line of support. This is the level to watch tonight.
In Europe the market closed before the strong gains in the US and the FTSE closed down 1.30%, the DAX fell 1.19% and the CAC dropped 0.61%. Milan was poleaxed falling 2.16% and in Spain stocks dropped 0.48%. Part of Italy’s problem is the alarming rise in peripheral bond rates with the Italian 10 year up a whopping 23 basis points. But only to 4.36% so its hardly punative.
In Japan the Nikkei remains under pressure with yen so strong against the USD relative to recent moves. The Nikkei still looks vulnerable.
When it comes to FX overnight the moves were amazing and certainly on the right hand side of the bell curve in terms of daily ranges for the majors. The euro traded 1.3074-1.3304 to sit at 1.3245, GBPUSD was incredible trading 1.5380-1.5683 and sits at 1.5602 and the yen had a big win against the USD trading 99.47-95.96 before bouncing back to 97.13 this morning.
As I noted above these sorts of ranges in the three big currency pairs speaks of the kind of instability that the Fed, BoE and BoJ’s unconventional monetary policy is putting into markets.
As you can see in the chart above the euro has broken up and out of the trend line and last nights move above 1.33 makes for a very ugly shoulder now on the putative head and shoulder pattern I drew a week back but this in itself is a lesson in how to trade esoteric patterns such as this – don’t pre-empt them wait for the levels to the downside to break.
The Aussie was also volatile trading 0.9432-0.9673 and it sits at 0.9607 at the moment. The AUD low was just 20 points above the big support zone I have identified for a while now and the candle on the chart speaks of a potential bottom in the exact right place for the moment. Here on MacroBusiness this morning there is a report that everyone is queuing up to sell the Aussie Dollar which is a necessary precondition for a sustainable bounce of 3-4 cents so we’ll see how we go. If and only if 94 breaks will I get uber-bearish.
On commodity markets crude and gold were both up more than 1% but copper fell 1.5%.
Data
In Australia today we have the AiG Performance of Construction index before trade data in Germany, France and the UK tonight but it is non-farm payrolls that are the key in the close out to week’s end.
Twitter: Greg McKenna