Friday, October 4, 2013
Due to the government shut-down in the U.S., the usually highly anticipated Non-farm Payrolls report for September will not be released this morning. So far, no alternate release date has been set. For those traders who need their monthly payrolls "fix", we did receive the private sector job report from Automatic Data Processing (ADP) and Moody's Analytics this past Wednesday. The data was a bit of a disappointment, with 166,000 jobs created last month. This was slightly below the 178,000 jobs analysts were looking for, but this really was within the range of forecasts. Although the ADP data can vary from the official government data on a month-to-month basis, the longer-term trend does correlate fairly closely, So it appears that the U.S. may be resigned to slow employment growth for the foreseeable future, especially if U.S. political leaders remain far apart on an agreement to resolve the current government shutdown -- and more importantly, if they find a way to finally curtail soaring U.S. government debt
Despite continued concerns about the strength of southern European economies, the Euro has strengthened vs the U.S. Dollar, as traders have turned their focus to the government shutdown in the U.S and the possible ramifications of the Federal Reserve beginning its "tapering" in the near future. The European Central Bank (ECB) announced on Wednesday that it is keeping its benchmark interest rate at 0.5%, as real GDP growth was positive in the 2nd quarter and inflation continued to stay below the 2% target. The Euro also received some support, as an attempt to topple the Italian Government by a faction led by Silvio Berlusconi was averted, as he ultimately agreed to support the current Prime Minister Enrico Letta. In the post-meeting press conference, ECB president Mario Draghi showed little concern with the recent strength in the Euro, and continued with previous language regarding keeping open any options to provide ample liquidity if needed. He did not specifically mention any additional long-term financing operations (LTRO). However, it appears that a flight away from the U.S. Dollar is due to disappointing employment data from ADP (160,000 private sector jobs created in September, vs. expectations of 176,000 jobs), as well as few signs of an agreement being reached by U.S. lawmakers to end the partial shutdown of the U.S. government, or more importantly, an agreement being reached to raise the debt ceiling limit later this month. Should we actually see an agreement out of Washington in the near future, especially if there was little damage done to the overall U.S. economy, a "relief rally" in the greenback would not come as a surprise, which could put at least a temporary end to the recent Euro rally and would most likely be a welcome event for the ECB, especially for European exporters.
Looking at the daily continuation chart for the Euro FX futures (front month ECZ13), we notice prices breaking out to the upside after trading in a 2-week consolidation pattern near recent highs. It is notable that trading volume has slowed the past few months, but especially during the last move up. The 14-day RSI has reached overbought levels, with a current reading of 70.77. The 2013 high of 1.3715 looks to be the next resistance level for the Euro FX futures, with support found at the low of the recent price consolidation phase at 1.3464.
Mike Zarembski, Senior Commodity Analyst