Some Weekly Forex Highlights: March 8

Includes: FXE, UUP
by: Ralph Shell

Despite the persistent hand wringing from the "Chicken Little" crowd, today's Non-Farm Payroll report suggests Bernanke's loose money policies may be paying some dividends. The number of jobs created, 236K, was a surprise as well as the reduction in the unemployment rate to 7.7%. Contrast this to the eurozone unemployment of 11.9% up from the previous month's 11.7%. It is to early for Bernanke to do a victory lap around the Fed's bank building in Washington, but it is Bernanke, not Draghi, who should rightfully be talking about "positive contagion."

The reduction in the U.S. unemployment rate was reduced to a level last recorded in December 2008. Despite the fiscal squabbles in Washington and the recent fretting about minor budget cuts, the private sectors added to their workforce. Granted the Household Survey does show many of the new job holders work part time and there was a 77K drop in full time jobs, as well as a big jump, 102K, in multiple job holders, so conditions are not ideal. We wonder if the new costs of Obamacare for full time workers might not be responsible for the increase in part time jobs, as well as the number of multiple job holders. Nevertheless, the report did liven the currency markets.

The euro was trading above 1.31 when the report was released and then fell to 1.2955, probably feeding off those with tight stops along the way. Prior to the NFP report, the euro had been gaining on the USD. Traders seem to find ECB President Draghi's comments soothing, and his press conferences seem to give the euro a temporary bounce. But is his radiation of confidence in the euro what that economy really needs? As some one recently said, " a strong euro is as useful as a screen door on a submarine."

The markets' collapse today does not paint a pretty picture for the euro bulls. Often bear news shows up after the market goes down. The Italian political vacuum remains. The ex-comedian Grillo and his Five Star Party seem to be making more friends with his anti-euro stance. Will that be next crises?

It looks like we are headed for a poor Friday close in the EURUSD (NYSEARCA:FXE). Fundamentally there seems no reason to buy the euro versus the USD. Next week does not appear to be a big week for reports so the political world may be of bigger importance. We remain bearish, however, it is best to sell the rallies.

The unemployment numbers from Canada were also positive. There was an increase in employment of 50.7 workers, and the unemployment rate was down to 7%. Since the Canadian population is only 11% of the U.S., that would equate to about 500K new jobs in the U.S.

The Canadian economy had been showing slowing signs, or slow growth at best:

"And yet the February employment report was strong almost cover to cover," noted Robert Kavcic, senior economist at BMO Nesbitt Burns, adding that, with fresh numbers on housing starts and trade this week, "Canadian economic data suddenly have a bit of spark."

After the NFP report the C$ strengthened from about 1.03 to 1.0240 before the USD started regaining lost ground. As we mentioned earlier in the week, there has been a big build in the futures open interest. We also know from the COT report that specs are short the C$. The Canadian manufacturing sector needs a weaker currency, and we wonder if the Bank of Canada is more than a bystander here.

The loonie rallied this week but was unable to exceed last week's high. Though I had felt the USD could go to new high territory versus the loonie, what appears to be forming is a weekly doji. With the higher and lower shadows both within the previous week's trade, this might be a warning the move is over. On the other hand the MACD has turned higher.
The jury is out on the CAD.

The Japanese yen has had a giant move to the down side against the world's currencies. The yen had no friends, and specs were lined up short big numbers. Lacking new bear news, the USDJPY stalled, range bound for several weeks. With so many shorts, we though there might be a reversal day once the 94.50 high was taken out. This has not happened, and the market moved decisively up to 96.50. It looks like the last spike was response to the NFP report and we have since begun to tail off.

According the reports from the CME, the OI in the yen futures has shown strong growth. On February 28th, the OI was 223K. Through the 7th of March, it had grown to 260K. This increase in the OI means there are new shorts entering the market. Since the market took out the old 94.50 and moved sharply higher, we are now inclined to regard the 94.50 as support. We will see what opportunities are presented next week.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.