With the weekend nearly upon us, it is perhaps best to take a step back and try to determine if a longer view of the present gives us a better glimpse of the future. When looking at the weekly charts from this week, we assume the markets have assimilated data from this week's reports.
Today, the market digested the final NFP before the November 6th U.S. elections. The total jobs number -- 171K new jobs and an upward revision to 148K in the previous month -- made positive headlines, and seemingly confirmed the U.S. economic recovery continues. Looking at the numbers in greater detail, the unemployment rate was back up to 7.9% as expected, and average hourly earnings in the private sector was down to $19.79. This means that private sector earning are not keeping up with the rate of inflation. More jobs, but not more income.
Weekly (EURUSD FXE) Comments: The euro has been under pressure this week after the currency tried to conquer the 1.30 handle and failed. Today, the sell-off has moved the pair under the 1.2850 level, and is testing support around the 200D SMA at 1.2833. The single currency seems unsuitable for all the members. Unemployment in Europe was revealed to be a record high -- 11.6% -- and the European economy seems to be contracting.
Greece is again on the brink of insolvency without another bailout before month's end. Spain also has myriad problems, and Britain is threatening to drop out of the EU should the Brussels bureaucrats insist on the budget increases.
While this outlook is bleak, currency valuations are the result of a "least ugly" contest. Should President Obama be re-elected this coming Tuesday, this could hurt the value of the USD for several reasons, over the short as well as the longer term. Obviously, Bernanke would remain, as would his expansionary monetary policies, which helps the big brokers and bankers. Over time, this devalues the USD.
Next, there is no Obama plan to reduce spending or the deficit, aside from raising tax on the rich, nor is there any acknowledgement of the unfunded government mandates and promises.
Finally, there is no effective energy plan that reduces the U.S. reliance on imported oil. The U.S. has the resources to be an energy exporter but instead, spends $25B per month to import oil. If the U.S. continues to do nothing about the twin deficits, trade, and budget, the USD will go down.
The euro is in the support range we have had for a target. Next week should be quite interesting.
(USDCAD, FXC): The C$ did gain on the USD after the NFP took the currency down to the top side of our buying range at .9940. Today the Canadian employment report showed an increase of only 1.8K, but the unemployment rate remained unchanged at 7.4%. Should there be additional signs of weakness in Canadian economic activity or lower energy prices, we look for the USDCAD to go to the 1.02 area.
(USDJPY, FXY): Several weeks ago, we suggested the Japanese yen versus the USD -- then at 78.30 -- was due to weaken. It did, perhaps not for the reasons we expected, and is now trading above 80 yen to the USD. This looks like a break out on the weekly chart, with an eventual trade above the 84 handle. We will review next week. Is 80 the new support level?
(AUDUSD, FXA): This pair has been stuck in a narrow range for the past several weeks. Next week, the RBA will announce the results of its most recent meeting. Will the bank rate again be reduced to 3.00 percent? Australia is so responsive to Chinese economic activity, and with a new Chinese leader coming in, will he not be inclined to stimulate their economy? We are watching, thinking about trying the long side of the A$, perhaps against a short yen.
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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.