Besides news regarding the debt crisis in Europe, futures and Forex traders will be focusing on today’s Challenger jobs report and the ADP private sector jobs report for direction. Traders expect the ADP report to show a loss of 20,000 jobs. An amount greater than 20,000 should support the Dollar as it will indicate a weaker economy. Later in the day, the Fed releases the Beige Book of economic conditions.
U.S. equity markets are trading flat to lower ahead of the job data reports. In addition, traders are reacting to the mixed news that is coming out of the Euro Zone. This news seems to be changing by the hour which is helping to create investor indecision and some light volatility. Yesterday U.S. stock indices opened higher but failed to maintain the upside momentum throughout the day and weakened into the close. Investors seem to be nervous about holding risky positions which could lead to a profit-taking break today. Worse than expected jobs data is expected to lead to an acceleration to the downside.
Treasury markets are trading a little better in anticipation of the weak jobs data. News that the economy lost more jobs than expected could trigger a strong rally. This would be an indication of what to expect following the release of Friday’s U.S. Non-Farm jobs data.
April Gold and June Crude Oil are trading higher in anticipation of a rally in the Euro and a drop in the Dollar. Last night gold rallied through the 50% retracement level at $1136.75 which stopped the market on Tuesday, but failed to attract strong buying which should have driven this market to the .618 level at $1158.52. Gold traders may be ahead of the rest of the markets in anticipating a weaker Dollar.
The March Euro is firming overnight after Greece announced more budget cuts in an effort to sway the European Union into approving its bailout package. The new plan includes higher taxes and pay cuts for government officials. Greece has been making an effort to shore up its fiscal deficit in order to convince the EU and investors that it is committed to taming its budget crisis. At the same time, there is talk that Greece is prepared to go to the International Monetary Fund if the EU fails to come through with sufficient aid.
Technically, the Euro confirmed Tuesday’s closing price reversal bottom with a follow-through rally last night. The current rally is getting close to the last main top at 1.3692. A trade through this level will turn the main trend to up for the first time since December 7th, 2009. With a record amount of short positions against the Euro, a change in trend and a resolution to the Greek budget crisis could trigger the start of a massive short-covering rally back to 1.4000. Gains could be limited if shorts don’t budge and if the developing deficit crisis in Spain flares up. Talk is circulating that hedge funds may face new regulations. If this story proves to be true then look for the short-covering rally to begin soon.
The March British Pound is gaining back some of its loss from earlier in the week because of the firmer Euro and on speculation that capital will stay in the U.K. if Prudential PLC’s takeover of AIA Group, Ltd. is delayed. The developing move looks like short-covering rather than trend changing. The poor state of the U.K. economy, its budget deficit and a dovish monetary policy should continue to keep a lid on appreciation. Furthermore, concerns that the Labor Party may gain a majority stake after the upcoming election should continue to keep downside pressure on the British Pound.
The Dollar is trading slightly lower against the Yen overnight as traders remain a little tentative that a resolution to the Greek budget crisis will be reached soon. After failing to extend gains to a key .618 price level at 1.1356, downside pressure is helping to push the March Japanese Yen toward the 50% support level at 1.1227. Selling pressure came in last night after a break through the last top at 1.1295 failed to encourage more buying. A closing price reversal top today or a break under the 50% level at 1.1227 will be a sign that a short-term top has been reached.
The rally in the Euro is helping to support the March Swiss Francs. Traders are buying this currency in anticipation of a deal between Greece and the European Union. A stronger Euro reduces the need for the Swiss National Bank to intervene to protect its economy. The charts indicate that upside pressure could take this market up to .9526 over the near term.
The March Canadian Dollar is trading higher, but inside of yesterday’s range. Upside pressure is coming from a pick-up in demand for higher risk assets as investors feel more confident that Greece and the European Union will reach a bailout agreement. Yesterday the Bank of Canada voted to leave interest rates unchanged but left open the door for a rate hike after June if the economy continues to heat up. Earlier in the week it was reported that Canadian GDP grew by 5.0% versus pre-report guesses of 4.2%.
