What September Break?

We have just turned the calendar page to September, entering a period when historically the equities markets have a hard time advancing.  Not true today as the Dow has advanced over 200 points, and is again well above the 10,000 threshold.   August 2010, with the worst equity market results in ten years gave way to aggressive buying, despite mixed economic reports.  An early report, the ADP Non-Farm Employment Change, which showed job loses of 10k was offset by higher ISM Manufacturing PMI 56.3 versus an expected 53.2, and 55.5 in the previous period.  The ISM Manufacturing Prices Index was also better than expected and this gave the market a further boost.

Some view theses positive reports as evidence a double dip recession has been lessened.  Market Watch reported......."Someone forgot to tell the country's manufacturers about the tales of a double-dip recession, deflation, and depression that have engulfed Wall Street and the country's top economists and policymakers over the last month. "

Earlier the global markets were encouraged by an HSBC Manufacturing PMI in China that showed better than expected numbers and a Chinese survey that showed a slight pick up in the Manufacturing PMI.  With money readily available, as the Central Bankers, doing their part to fight the economic downturn, are keeping interest rates so very low.  Is it any surprise some of this cheap plentiful money makes it's way into the markets?

The European  equity markets all posted some very strong numbers, up 2.5% to almost 4%.  Once again the euro gained smartly on the USD going back up to the 1.2850 level, the best in over two weeks.  With US initial unemployment numbers tomorrow and the NFP and the US unemployment rate on Friday, we sold the rally for a short term scalp, expecting a choppy volatile market rather than one which will trend.   One of the issues again will be how the USD will respond if the US data is bearish on the economy?

A big mover today has been the C$ gaining on the USD trading early at 1.0645, and then selling down to 1.0484.  It looks like this was a better attitude toward an economic recovery caused the loonie to gain versus the USD.  We bought the USDCAD  around the 1.05 handle.  Recoveries are usually a mixture of good and bad reports, so we will see what the rest of the week brings.  

The Australian dollar had a nice move today, responding to global equities, and a strong GDP number.  Quarterly growth was +1.2% topping the forecast of  0.9%, which brought the annual growth to 3.3%.  This, combined with the better numbers from China concerning their manufacturing activity gave the market a solid boost toward the 91 handle.  So much for a hung parliament being bearish on the A$. (See my post from 08-21 Will the Australian Election Help their Currency?)   The MACD appears to be turning higher after flirting with the zero line.   We prefer the long side of the A$ versus the USD with an ideal entry in the .8950 area.

Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.