The taper is coming if the non farm payrolls that were released on Friday night and the revisions that went with them are anything to go by. The rise of 195,000 and the extra jobs added to already released data means that the “average” for the past six months is now above 200,000 which is an unequivocally good sign. There were jobs in finance, in manufacturing there were few but it seems overall with a bigger employment force these job gains kept the unemployment rate at 7.6% which is, at least on the way to being good.
Crucially for the markets it is just one data point closer to Septaper a fact not lost on traders in the euro and pound, both of which got a little smashed into week’s end as the clear distinction between BoE and ECB policy and what the Fed is planning on doing was bought into stark contrast.
The USD is likely to be on a tear in the next few months as this clear dichotomy between itself and its European counterparts becomes clear and as the US interest rate picture changes in favour of USD strength. Which of course means my target for 1.48 for sterling has now been achieved as you can see below and while the close is a little above the range bottom if the 1.4800 level gives way then my target becomes a move into the 1.42 low area.
The euro found support as well on Friday night and as you can see in the chart below but it too remains under pressure from the USD and looks set for a substantial further fall toward 1.20/21 over time.
It also looks like the legs of the Aussie’s chair are a getting kicked out from underneath it again with a big fall on Friday night to a close of 0.9060 on Saturday morning. Remembering that the USD is one of the key 5 drivers of the Aussie if it is going to strengthen then the AUDUSD is going to come under pressure – ceteris paribus.
0.8916 remains my short term target with big resistance at 0.9320 and then 94 cents. Under 0.8916 then it is 0.85 and then eventually 0.8229.
Looking briefly at USDJPY it is getting a lift back toward 101.70 and above that 103.
The strength of non-farm payrolls on Friday night was enough to get stocks to concentrate on the recovery rather than the taper and the Dow closed up 147 points or 0.98%, the Nasdaq was 1.03% with the S&P 500 up the same amount for a rise of 17 points.
As you can see in the chart above of the S&P 500 the rally at the moment is still consistent with an overall 2 month downtrend and we are likely to get a chance to see it the trend line resistance is going to hold or not in the next week based on the momentum build Friday. A break of 1640 would be very bullish for stocks and a rejection just returns focus to support at 1590.
In Europe the rally of Thursday was unwound Friday to a large extent Friday as the strength of US non-farm payrolls seem to have spooked the market. The fact that the US in the end closed higher probably bodes well for a rally tonight but it is interesting to see the difference on either side of the Atlantic. At the close the FTSE was 0.71% lower, the DAX tanked 2.36%, the CAC fell 1.45% and the Milanese and Madridian stock markets were around 1.7% lower.
Gold lower, crude higher
Commodities were a story of US dollars and Middle Eastern tensions as gold came under attack once again closing at $1222 oz down almost 2.5% but crude rallied by 2% as tensions in the Middle East and the huge draw in the US this week saw it close at $103.63 Bbl. This is not a good sign for the US economy if this rise is sustained.
Perhaps this is something that Dr Copper has recognised because it was off 2.96% at $3.08 lb.
Data
Today sees ANZ job ads which I thought were out last Friday but it is German trade and production data Monday night I will be watching closely and which I expect to knock the Euro for six. Draghi is also speaking.
Twitter: Greg McKenna