Ralph Shell @ 2:27 PM, Friday February 04 2011
If you are able to understand and perhaps even believe today's NFP, congratulation! According the the US payroll report, there were only 36k jobs created, but the unemployment rate was lowered to 9.0%, down sharply from the previous unemployment rate of 9.4%. The apologist for the gov's numbers, claim the culprit for the weak data is the cold and snowy weather which reduced both the number of new hires, and the amount of unemployed going into the winter cold, to seek a job. The drop in the employment number is, of course, caused by a reduction in those seeking a job. Unable to find work they give up even trying to find employment, and join the 86.2 million no longer in the work force.
Contrast this to the Canadian numbers. There the amount of new hires jumped to 69.2k well above the expected 18.9k increase, and the Canadian unemployment rate went up to 7.8% from the previous rate of 7.6%. Does this mean that the cold and snow that hindered growth of the US job market, failed to reach our norther neighbors, or are they a much more hardy group of job seekers? Maybe the perpetually increasing US government is too dysfunctional to collect and report data accurately?
While the Canadian labor report is friendly, this is negated by a surprisingly negative forecast from the Ivey Purchase Managers Index. This Index plunged to 41.4, well below the expected 53.4, and 50 in the December report. The loonie, currently trading under .9890 versus the USD, may be suffering because of the Ivey Report and modestly weaker crude prices today.
Has the January bull run in the euro versus the USD run its course? Trading briefly under the 1.30 handle in early in the month, the euro soared above 1.38. Now trading at 1.3588, market actions this week looks like we have made a top. On the advance, the funds and large specs aggressively bought the euro. It will be interesting to see if they hold these longs. There was about 6k contracts of futures liquidated yesterday.
Earlier in the week the Euro Central Bankers were worrying about the inflation rate. The euro bulls used this as an excuse to cheer the single currency higher, talking about a euro bank rate increase later this year. Inflation does exist, and is primarily caused by higher energy and foods cost. Higher rates might make the Central Bankers feel powerful and important, but would not solve the problem, but merely make the recovery more difficult. Toward the end of the week, the market began to focus on the inadequate ESFS bail out fund.
January's purchases of €60B or more of the lower rated peripheral debt did give the euro debt traders some warm fuzzy feelings but what now? Pressure is being applied on the Germans to increase the lending capacity of the ESFS fund to €600B. At a meeting in Brussels today, in return for French and German cooperation, other nations would have national debt limits, set a minimum corporate tax rate, designed to get Ireland to increase rates, raise the retirement age which is lower than Germany's 67, and halt indexing of wages to the inflation rate. Getting countries to give up a large portion of their fiscal sovereignty, will likely evoke noisy protests. Disgruntled euro members might lead to an unhappy family and possibly, a lower euro.
We want to treat this week's high above 1.3850 as resistance. It is always hard to predict weekend political development, which bankers will declare, for inflation's cure and the global good, bank rates must be increased. We want to treat the euro as a trading affair, shorting in the event we are given the opportunity above the 1.37 level. A quick retreat to around the 1.3350 level is worth a shot on the long side versus the USD. Note further weakness in the euro will probably turn the MACD lower. Make no mistake this is not like trying to pick, the best of the group, but rather which is the least ugly.
Have a great weekend!
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.