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GLOBAL OUTLOOK CHEAT SHEET 11/06: NFP DAY AND HOW TO PLAY IT

GLOBAL OUTLOOK CHEAT SHEET 11/06: NFP DAY AND HOW TO PLAY IT

- Stocks: Thursday: Asia down, Europe up, US up, Friday morning Asia, Europe up

- FX: Higher equities Thursday, bias against safety currencies [JPY, USD, CHF in
order of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in
order of risk appetite appeal], USD down against all majors except for JPY,

- Main events today: GBP: PPI Input m/m, CAD: Unemployment Change and Rate, USD: NFP Change, Unemployment Rate, Avg Hourly Earnings m/m, ALL: G20 Friday, Saturday

- Big Theme: Risk Appetite Back? Rising thus far this week-See Conclusions below for trading opportunities as many assets approach or breaching key levels. Light news until US Employment report TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, MARKET REACTION TO NEWS TO DECIDE. RISING MARKETS AHEAD OF NFP SUGGESTS RESILIENT OPTIMISM (OR SETUP FOR FRIDAY PROFIT TAKING?)

STOCKS

US: (NYSE:AP) A bright forecast from Cisco Systems + upbeat economic news sent stocks soaring Thursday and the Dow industrials back above 10,000. The rally, coming a day before the government’s October employment report, showed investors are regaining their optimism about the recovery. The S&P 500 regained the 1060 level it had lost on last Friday’s profit taking. Ahead today, the month’s climactic economic event, US monthly employment data, which will provide the next key insight into the recovery’s progress and the health of the all important US consumer’s ability to spend. SEE FULL VERSION FOR MORE ON NFP, OUTLOOK AND HOW TO TRADE

Asia: Japan’s Nikkei stock average rose 0.9 percent on Friday as exporters such as Canon Inc climbed after good U.S. job news renewed hopes about the pace of economic recovery, with tech shares up after gains by their U.S. peers. Hong Kong shares climbed on Friday, spurred by gains on Wall Street and encouraging U.S. data, while China rose to a fresh three-month high as steel and metal shares firmed.

Europe: LONDON, Nov 5 (Reuters) – European shares set a one-week closing high on Thursday after data showed new claims for U.S. jobless aid fell to a 10-month low and business productivity in the third quarter grew at the fastest pace in six years.

ASIA- DOWN N225I -1.29% HS -0.63 % SSEC +0.85 FTSTI -0.73% AORD -0.62 %
EUROPE UP FTSE +0.35% DAX +0.67% CAC +0.63%  
US- UP S&P +1.92% DJIA +2.08% NASDAQ +2.42%    
THIS MORNING N225I +0.74% HS +1.63 % SSEC +0.28 FTSTI +1.17% AORD +1.39 %
  FTSE +0.03% DAX +0.12% CAC +0.10%  

Oil: Continuing to hover around $80/bbl in Thursday and early Friday morning trade. However, analysts said most of the optimism has already been priced in and persistently sluggish energy demand in the US, the world’s largest energy consumer, could limit oil’s gains. "We think upside in crude will be rather limited as supportive macro factors start to fade and physical markets remain weak."

Gold: Continuing to break to new highs following the news India’s 200 tonne purchase from the IMF, currently breaching $1090. Press reports indicate that the RBI made their purchases between October 19th and 30th at an average price of $1,045 an ounce-with gold likely to test the 1,100 level, they’re already profiting brilliantly. A gain of about $50 an ounce is about a five percent rise increase in the RBI’s $6.7 billion purchase, which is a gain of about $335 million. That’s a lot of Rupees.

CURRENCIES: Bias to risk currencies due to overall recent up-trend in stocks. FX trade today will move with how stocks react to the major news events mentioned above. An index that measures the dollar against six other major currencies rose 0.1 percent <.DXY>, while the euro, the biggest component of that basket, was unchanged at $1.4874

USD: NEW YORK, Nov 5 (Reuters) – Losing ground against riskier higher yielding currencies as stocks, gold rise. A surprise in either direction in the NFP and related reports could send the USD moving hard.

EUR: - euro gains above $1.49 were short-lived, and analysts said investors were largely moving to the sidelines ahead of Friday’s jobs report, expected to show a slower pace of U.S. job losses but another rise in the unemployment rate.

JPY – The dollar rose 0.1 percent to 90.76 yen Thursday. Losing ground against most of its counterparts. We remain cautious on JPY performance and look for USDJPY to remain choppy around 90 in the near-term.

GBP – Up against the USD and EUR, again on Thursday to $1.6582 as the GBP gained on news of less than expected QE increase.

AUD: Up 0.48% against the USD following stocks higher against it all this week along with other risk currencies

NZD: Moving up with stocks Wednesday and Thursday morning against the USD

CAD: Slowly gaining against the USD all this week into today following oil, stocks higher .

CHF: Following overall risk sentiment, thus the CHF has been in a tight range, gaining against the USD, EUR

CONCLUSIONS: Surprising optimism for the days so close to the US employment reports suggests most traders believe the figure will beat expectations and send markets higher. We say proceed w/ caution waiting until trend clarifies before entering new. SEE THE FULL VERSION FOR specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, AUDUSD, GBP/USD

Trading Opportunities: Near term has favored risk currencies, shorting safe-haven assets. Today’s news is quiet until 13:30 GMT US employment data. Along with the normal tendency to profit taking on Fridays, we suspect a bias to risk averse trade until the data comes out. The picture will be clearer after markets have had 4+ hours to digest the information Thus: 1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

GOLD: Continuing to hold near multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. It is difficult to predict the extent or duration of such a sentiment driven move into new territory. However, if news over the remainder of the week is strongly bearish for equities, it is difficult to see how oil and gold could continue to rise. Inflation would not be seen as a threat, thus undermining further gold advances. Crude inventories remain high, so there is no immediate problem with supplies that might drive oil higher, especially if the recovery picture does not improve. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher.

Crude Oil: Up slightly Wednesday near $79.50, unchanged in early Thursday trade. Still following the speculative rush into gold following India’s central bank bullion purchase despite stocks struggling. Next resistance is at $82. The combined price support around $77 has held over the past week. If the series of key news items over the next 3 days does not cause any surprises, then we might expect crude to trade within this $77-82 range. Positive surprises could cause crude to challenge the $82 level, and disappointments, especially in those related to unemployment, could pressure it towards $77 and below. If the FOMC surprises with a more dovish than expected statement, that would weaken the USD and thus help crude, whereas a more bullish FOMC wording could push the USD up and pressure oil. Watch the S&P and gold to see how news is affecting the markets and crude.

image0013

WTI Crude Oil Daily Chart

02 Nov 04

EURUSD: Broke decisively above the key $1.4700 support level (50 day MA + 23.6% Fibonacci retracement from its June rally, also lower BB band around 1.4657) on dovish Fed comments Look to play this break above this upside break to at least 1.4845, the high of the past few days, or if more bad news or drops in global equities, a break below to at least the lower Bollinger Band at around 1.4653, next support at around 1.4600, a convergence of past price support AND just above the 38.2% Fibonacci retracement from the June rally at 1.4565 . If gold and oil continue to move up on speculative pressure independent of equities, that could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time. Note that like other risk assets it’s pulling back Thursday morning, not unexpected as traders turn cautious ahead of ECB, BoE statements today and US employment data Friday

image0024

EURUSD DAILY CHART

02 Nov 03

NZDUSD: THE TRADE FOR THE NEXT 2 DAYS

Update: Virtually unchanged for the past 4 days around 0.7180, dropping slightly into Thursday

Background: Arguably one of the most overbought pairs because it moved up with the AUDUSD even though New Zealand’s economic fundamentals and recovery story was not nearly as compelling as Australia’s. Thus when the current pullback began, it was very vulnerable and came in hard and broke strong support near the $0.7250, where both its 50 day MA AND 23.6% Fibonacci retracement converged. Currently sitting on multiday support around 0.7160, it is currently falling (despite positive Labor Cost index q/q data this morning) and testing this level as Asian stocks pull back, apparently unimpressed by Wall Street’s last minute rally on below average volume.

Recommendation: No real support until $0.7077, at which level both a minor price support level from September and the 38.2% Fibonacci retracement converge to reinforce each other. No major NZD or USD news Tuesday, so this will move with overall market sentiment, which is currently down in Asia. However Wednesday is packed with top events in both the US and NZ (see Summary-Key Events at the top) to virtually guarantee volatility.

To play the further drop, entry near current levels as shown on the chart below while sufficient profit potential remains before the $0.7077.

To play the upside, wait until stocks start climbing on some substantially positive news that could sustain a multi-day bounce, and the pair breaks above $0.7160. Wednesday’s packed calendar should provide clarification of the trend until Friday’s US NFP comes out.

As noted above, if gold and oil continue to move up independently of moves in equities, that could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time.

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.

image0034

NZDUSD Daily Chart

03 Nov 04

GBPUSD: Made its big move up in Mid October because the BoE hinted at QE ending sooner than expected. If in fact Thursday’s statement reveals further QE, especially if it’s the full 50 bln that many anticipate, that might cause the pair to drop to at least the 1.6300 support level it held after the terrible Q3 GDP figures. If the US employment figures disappoint on Friday, the general retreat in risk assets could send the pair back toward the deeper support level at 1.5800 that it held before the BoE jawboned the pair higher on pure talk.

image0043

GBP/USD Daily Chart.

BoE announcement of additional QE, along with disappointing US employment data on Friday could send it back to its mid October levels around 1.500 as part of a general retreat in risk assets, and flight-to-safety driven USD demand. Any upside surprise in either event could well send the pair higher.

02 Nov 05

OTHER HEADLINES

South Korea OK’s India free trade agreement- AP

Unemployment nears 10 pct. as rebound remains slow- AP

World unemployment up despite economic recovery- AP

Taxpayers risked trillions at height of crisis- AP

Stocks surge on jobs data, Cisco forecast- AP

Banks borrow more from emergency Fed program- AP

(Seekingalpha.com)

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Today’s FOMC Meeting: Extended Life Support for Markets?

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.