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Storm in stock markets cancelled all the positive of labor report


US report on labor market exceeded all expectations ( 292K of new work places). Still, the market reaction to this positive was quite specific – dollar strengthened for a short period of time and then rollback started again. However, there is an explanation for such behavior of dollar. Dollar passed its positions almost only against euro and yen. The answer is hidden in behavior of stock markets – they continued to fall on Friday. Let us recall that it was euro that has become funding currency for the whole previous year and leaving shares increases demand for euro. What we saw during last days of previous week.

This week will be focused mainly on European events. The most notable set of reports on the U.S.A. will appear only on Friday – retail sales, industrial production, producers’ prices and others. Actually, dollar will have no support till Friday. The exchange market dynamics will depend on regional events and low correlation of currencies is likely to continue. Here it makes sense to look closely at news background of the Eurozone, taking into account astonishing stability of euro last week. Here it turns out that despite the variety of the data, which are to be published this week, they don’t give any advantage to euro. Industrial production is to show weak result following Germany, inflation on some countries is no longer relevant as well as trade balance of the Eurozone. Annual GDP can provide some support to Germany, if it is better than predicted. So, for euro everything will depend on stock market, which in its turn depends on news from China and the situation on Korean peninsula. If it continues to fall, then euro continues to grow. British pound has an opportunity to improve its position. This week the Bank of England session will be held. There will be no changes in monetary policy. Only industrial production is notable. Under the lack of negative, it can have a positive influence on pound. Against the background of falling energy prices, prospects of trade currencies look poor. Still, we are quite cautious about these prospects. Oil prices can correct sharply, what will provoke correction of trade currencies, especially of Canadian dollar.

 

Trade tactics:

At this moment it is difficult to orient at macro indicators – they are in contradiction with flocking instinct of crowd. There is no strong positive in the Eurozone, however at the end of the week the common currency grew due to the panic in stock platforms. Herewith technical indicators in EURUSD pair give reasons to talk about probable continuation of ascending trend in the short term. Another weak beginning of the week at Asian stock platforms (the data on Chinese inflation were worse than expected at the weekend) led to renewal of annual maximums in EURUSD pair. Still, the situation has already stabilized at Asian stock platforms and we see pair’s rollback from maximums. To aggressive traders we recommend considering pair’s purchase at levels 1.0880 – 1.0900, stop at 1.0790, with aims at 1.0980 – 1.1000. In case of a pair growth of more than 30 points from the entry point, rearrange stop at the entry point.

 

Any opinions, advice, news, research, analyses, prices or any other information presented on this webpage is provided as general market commentary and does not constitute investment advice. "Vector Securities" shall not be liable for any loss, including loss of profit, which may arise directly or indirectly from the use of this information.



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