More US data means more bad news as of late. Yesterday the initial claims data show another increase, this time to 472k, while the ISM dived to 56,4 pts., far deeper than the market anticipated While the first reflects a tendency evident from the start of this year, the latter confirms a deterioration in economic performance in the US. The data fits in the bearish stock market scenario with the Dow and S&P500 futures making new lows (at 9560 and 1006 points respectively).
…while euro rebounds…
During the last couple of years investors got used to a positive correlation between the stock markets and the EURUSD or at least to the money flowing towards the USD in uncertain times. Yesterday, as the major stock indices hit fresh 2010 lows in a response to poor US figures, the EURUSD was on its way up. It actually skyrocketed from 1,22 to 1,25 – the biggest move in this direction since the downtrend began in Dec’09. It automatically spurred talks of investors selling the dollar on deteriorating US fundamentals, especially given the superb performance of German exporters. Would that be true, the euro could be on a longer trip up and fore mostly, market reactions would reverse (with the euro now gaining on the poor US data and sliding on good one).
The trick, however, is that the situation was influenced by the ECB drawing back cash from the giant annual repo. First of all, the European banking sector didn’t apply for as much of a roll-over (shorter term operations) as market expected – a sign of decent liquidity and a good news for the euro. Second, the operations could have caused some direct demand for the euro on the spot market. Therefore, one should be cautious with declarations of longer-term changes in attitude towards the euro.
Nevertheless, one could have observed some early signs of trend reversing or at least stabilization on the EURUSD for a while (not going for fresh lows despite negative influence of the stock markets and premiums on debts of many European countries still around the highs), and therefore yesterday’s shot upwards was more likely to happen. A key resistance for the pair at the moment lays at 1,2660.
…sending gold down
If the euro’s upshot surprised some investors, gold’s tumble left them speechless. Despite the dollar’s depreciation and elevated fears on the stock markets, gold not only didn’t move up but it literally crashed with ounce prices going temporarily below 1200 USD. Some link this directly to positive signs from the European banking sector (alleviating fears and thus prompting liquidation from long gold positions) but the true reason might be an exhaustion of demand. Gold prices might have just completed a full 5-wave structure (or are about to do so in a near future) sending prices from 680 to 1260 USD per ounce and a large scale correction may be around a corner.
Events to watch – payrolls, payrolls, payrolls
If there is anything capable of changing the market picture in a significant way it is definitely the payrolls release (8.30 ET, 14.30 CET). However, for this to happen, the data needs to at least show a rise in employment in a private sector by some 120k which was expected a week ago (actual expectations might have slipped since then). The consensus for the headline is at -110k because of (this time negative) an impact from the census hiring.
