NOK aside, and which was crunched by some appalling industrial production data on Friday (-3.0%m/m) as well as further weakness in oil prices, it was EUR/USD – followed by NZD/USD – led the surge in the USD in the immediate wake of another quite stunning US employment report. The standout features were the near 300k jump in employment (295k vs. 235kE and 239k in January, revised down from 257k) and even more impressive, the drop in the unemployment rate to 5.5% from 5.7%, aided by a 0.1% drop in the participation rate to 62.8% from 62.9%, as well as a drop in the underemployment (U-6) rate to 11.0% from 11.3%.
The 5.5% unemployment rate means it has now reached the top of the so called NAIRU range (Non-Accelerating Inflation Rate of Unemployment) for which the Fed’s current best estimate is 5.2-5.5%. ‘Theory’ says the policy rate should be neutral when we’re at the NAIRU – the latter a rate the Fed’s own forecasts currently suggest should be around 3.75%. EUR/USD finished -1.69% at 1.0844.
US equities found the employment report’s interest rate implications too hot to handle, the S&P 500 finishing -1.42% at 2071.3; the Dow was -1.54% at 17857. The VIX jumped .16 to 15.20. Treasury yields rose sharply and never really looked back during the afternoon NY session. 2s finished +8.5bps at 0.7234%, 5s +12.1bps at 1.6939% (+20bps on the week); 10s +12.6bps to 2.241% (+25bps on the week).
Speaking to the Wall Street Journal after the data, Richmond Fed President Jeffrey Lacker said “June has to be on the table” and that “June would strike me as the leading candidate for (Fed Funds Rate) lift-off”. He downplayed still subdued wages growth, saying that wages have an uneven relationship with inflation and that the Fed will have to raise rates before it sees its 2% price target achieved. He also downplayed the impact of the strong dollar.
In commodities oil was lower again, Brent -$0.75 to $59.73 (so -$2.85 on the week) and WTI -$1.15 to 49.61 (-$0.15 on the week). Friday’s Baker Hughes rig count showed a 13th consecutive weekly fall in operating U.S. rig numbers, -64 to 922 (-33 the previous week). Gold lost a cool $31 on dollar strength, to $1167.3. Industrial metals were lower, LMEX – 0.95$ and iron ore falling further below $60, -$0.24 to $59.49.
On Sunday we had the February China trade figures, which showed a quite astonishing 48.3% jump in Y/Y export values, which meant the overall surplus slightly improved on January’s $60.03Bn to $60.62Bn.
Over the weekend the US moved their clocks forward by one hour and as a result for the next three weeks-until Europe follows suit-all US economic data releases and market closing times will be one hour earlier.
This morning on the economic front we already had the German Trade Figures for January which came in a lot weaker than expected at Eur15.9Bn. We have no data due from the US or the Euro-Zone today and the only other data of note is Canadian Housing Starts which will be released at 12.15 pm.
March S&P 500
The S&P plan did not work out so well on Friday as following the much stronger than expected Payroll Report the S&P having traded lower to my 2090 buy level very quickly stopping me out of this trade at 2083 and I am now flat. It is interesting that the market has so far made a low at the now crucial 2067 support level. As I mentioned on Friday that a break and close below here will see me look to go short the market for more than just a short-term trade. However as we have not broken this level yet, today I will be a small buyer from 2062/2067 with a 2058 stop. If I am taken long and subsequently stopped out of this position I will then go short in front of 2060 in small size with a wider 2072 stop. Otherwise I will only look to go short the S&P on any rally back to 2078/2083 with a 2087 stop.
EUR/USD
Shortly after I posted on Friday the Euro traded lower to my 1.0960 buy level before very quickly stopping me out of this position after the release of the Non-Farm Payrolls at 1.0925. The Euro is extremely oversold with the Daily Sentiment Reading at historic lows. The Euro is trading at the bottom of its Bollinger Band and Williams Index and for this reason I bought the Euro again late on Friday at 1.0855. I will leave a stop on this position at 1.0820 which is just below the overnight low. It is hard to believe that at the end of October the Euro was trading at 1.2800. My only interest in selling the Euro will be on a rally back to 1.1050/1.1100 with a 1.1130 stop.
US Dollar Index
This morning the Dollar Index is trading outside its Bollinger Band and Williams Index and the RSI is trading at 74. After the Payrolls were released on Friday I was very quickly stopped out of my 96.50 short position for a small loss at 97.10 and I am now flat. The fact that the Dollar is so overbought and the Daily Sentiment Index for the Dollar is at such extreme levels I am looking to go short the Dollar again on any further rally to 97.50/97.80 with a 98.25 stop.
March DAX
In contrast to the above three markets on Friday the DAX plan worked very well as shortly after the Payrolls were released the DAX spiked higher to my 11570 sell level with a 11600 high. This morning the DAX is finally trading lower which has enabled me to cover this position at 11480 and I am now flat. Today I will again look to go short the DAX on any rally higher to 11550/11590 with an 11620 stop which is just above last Friday’s high.
March FTSE
My short 6950 FTSE position from last Thursday worked out well on Friday as the market had a nice sell-off which enabled me to cover this position at 6900. After I covered my short position the FTSE continued to get hit hard to the downside with the market eventually hitting my 6860 buy level. I am still long and today I will lower my stop slightly to 6825. I will also be a small seller on any rally higher to 6900/6930 with a 6950 stop.
Dow Rolling Contract
Unfortunately I am still flat the Dow as so far I have not been able to get short the Dow at a decent level. Last Friday it was announced that Apple will join the Dow ousting AT&T and this is bound to have a large effect on the Dow going forward. As I have mentioned over the past two months, it is very difficult to be long the Dow at this time especially when we have already had seven Hindenburg Omen’s so far in 2015. Also the strong Dollar is have a huge effect on the earnings of some of the major Dow stocks as the strong currency means they are losing their competitive advantage that they have had for the previous 12 years. Today I will lower my sell level to 17960/18010 with a 18050 stop.
June BUND
My short 157.15 Bund position worked out very well on Friday as the Bund had a decent sell-off following the US Unemployment Report which enabled me to cover this position at 156.40 and I am now flat. The Bund is rallying this morning on the back of the weaker European Stock markets and today I will again look to go short from 157.05/157.35 with a 157.60 stop.
Gold Rolling Contract
The price movements in Gold show why it is so important to have stops in the market as soon after I posted on Friday Gold was trading at my 1191 buy level before very quickly stopping me out of this position at 1183 and I am now flat. Subsequently Gold traded lower to 1164 and is trying to rally off this level today. The next decent support for Gold is at 1160 and today I will be a small buyer from 1157/1165 with a tight 1149 stop.
Silver Rolling Contract
Silver continues to outperform Gold at this time. Soon after I posted on Friday I was stopped out of my long 16.40 position at 15.90. Subsequently I went long the market again at 15.75 and I will leave my stop the same on this position at 14.90.
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