European stocks ended what has been a very good month in the red overnight as they played catch up with the US move the night before and some weaker than expected data and the fact that we all await the release of the single most important piece of monthly economic data tonight, non-farm payrolls in the US. Equally a bit of unrest in Greece with some communist storming a labour minister's office is keeping a few eyes on the real economic problems of the region. This didn't stop the Euro pushing higher once again against the US dollar however.

In the US it has been a fairly quiet night with the Dow having traded just a 13,871-13,941 range and the S&P likewise only moving through a relatively subdued 7 point range during their day. No doubt a big part of this is the month end but also the fact that non-farm payrolls are due to be released tonight.

Non-farm payrolls have always been the big number on the monthly economic calender but of course the Fed's focus on US unemployment as the driver of the $85 billion of bond purchases each month.

Looking back to yesterday we know that at its core the FOMC statement said three things

  1. The economy slowed toward the end of the year;
  2. We are going to keep our bond buying program going; and
  3. Unemployment is still a very important metric for us

Last night we saw data from the US that reinforced this message and saw the US dollar under pressure once again.

Initial jobless claims were up a huge 38,000 at 368,000 as at January 26 with continuing claims up to 3,197,000 from 3,175,000 last week. Personal spending was up 0.2% a little lower than the 0.3% expected but the personal income data at +2.6% was much stronger than the 0.8% expected. Taken together we can see reasons for hope here if income is rising but its clear as yet it is not being spent - something that needs to happen for the US economy to start to heal properly and start to create those much needed jobs. Also out overnight was the Chicago PMI which was at 55.6 from 50.5 expected for a very good result.

So a mixed back that suggests the US economy might be healing but still has some challenges and a bag that highlights the importance of the US employment data tonight. According to FXStreet the market is looking for a rise of 160, 000 (which is the magic number by the way of employment growth) but looking for the unemployment rate to stay stable at 7.80%.

We'll see tonight.

Either way though the close to January and its good performance for what is the third January in a row augurs well for the full year performance according the guys at the Stocks Traders Almanac. Yesterday on their blog they looked at the performance in such circumstances and said

When the third January did take place, the third full-year (or when the streak lasted beyond three years) averaged 15.3%. Of these 18 years only two finished in the red, 1946 and 1966. In 1947, the S&P 500 finished the year unchanged. As one may expect, the majority of these streaks occurred in the secular bull market years spanning 1949 to 1966 and 1982 to 2000. Opinions and definitions may differ, but we consider the years between 1929 and 1949 to have been a secular bear, so this phenomenon has happened before within a secular bear and is about to happen again in one.

My bolding, and I am a bit skeptical technically but this is a very strong statement isn't it. On a cash flow sense though it accords with the Fed and economic discussion above - if the Fed is going to continue to grow its balance sheet then stocks are likely to continue to benefit over the course of the year. Interesting outlook for the US dollar of course as a result of all this printing - it should head lower but we will see.

Stocks

As noted above the European market had a bit of a sell off playing catch up to the US move after it closed the previous night but also because some economic data was on the weaker side of the ledger.  German retail sales in December tanked falling 1.7% against expectations of a 0.1% fall and down from last months 0.6% rise. French sales were also lower than expected coming in flat month on month against expectations of a rise of 0.3%.

So this combination saw the FTSE close down 0.73%, the DAX down 0.45% and the CAC down 0.86%.

In the US at 7.30am with a half hour to go the Dow is now down 26 points or 0.19%, the S&P is off just 2 points at 1,500 while the Nasdaq is up 0.09%.

In Asia yesterday it was a mixed bag with the Nikkei up 0.23%, Hang Seng down 0.39%, Shanghai up 0.11% while the Sensex was 0.55% lower and in Singapore stocks fell 0.09%. In Australia our market was off about 0.40%. On a CFD basis the 4800/11 region looks like support and it needs to hold.

Global FX

GBP was stronger last continuing its recovery from recent lows and it is closing right on the 200 day moving average at 1.5860 up 0.39% over the past 24 hours. The Canadian dollar was also stronger up 0.44% against the USD as USDCAD has fallen to 0.9966 from a high of 1.0034. The Euro is not much changed up 0.05% at 1.3573 off the high of 1.3593 but well off the low of 1.3539. The USD did have one victory though up 0.31% against the Yen at 91.35.

The Aussie battled hard yesterday after some ratings agency comments about a slow down in Australia gave the sellers the impetus to test support with the ding dong low on the Aussie yesterday the 1.0380 which was the level we highlighted that we thought it was headed back to in yesterday's morning call. Sellers found support at that level firm before the rally overnight as the US dollar weakened and clearly the bulls were buoyed by that support.

aud, audusd, australian dollar, australian dollar price quote, audusd

As you can see in the 4 hour chart above the Aussie has transitioned from one box to another which now informs our approach to trading it in the short term and intraday.  It's even more obvious if you use the 1 hour charts and on the day 1.0452 is resistance and 1.0429 support then 1.0417.

eur, eurusd, euro, euro (eur) price quote

The Euro is becalmed if we look at it technically on the hourly chart below and we can see that while we might expect it to be fairly quiet in the run up to nfp tonight thee ranges are getting smaller which for us is an indication that there is a big move coming. Well see - levels to watch 1.3518/20, 1.3500 and 1.3411 as support. Topside there is no significant resistance until 1.3800/25.

Commodities

Commodities continued their recent relative volatility with Crude down 0.52% to $97.43, Gold was off 1.15% to $1660 and Silver dropped 2.54% back to $31.30 oz. Gold's low was once again on this little line that has been very strong on a closing basis since the low back in December.

gold, gold price quote, xau, xauusd, gold daily chart

Data

We could argue that nothing matters except the Non-farm payrolls in the US tonight where the pundits are looking for 160k but there is a raft of Markit PMI's out through Europe and the US to follow on from the preliminary numbers in January.

Catch me on Twitter @gregorymckenna or @FX_Global