Equity markets moved higher on Friday after US earnings numbers overshadowed another weak US payrolls number. In the end, the Dow Jones Industrial Average finished the session higher by 1.06%, while the S&P 500 rose 1.33% and the Nasdaq outperformed by 1.69%. The strong finish means that all three indices managed to recover from heavy losses sustained earlier in the week.
Jobs
Labour statistics from the Bureau indicated that payrolls grew by 110,000 in January, much less than the expected 185,000, however the underlying unemployment rate dropped to 6.6%. The unemployment rate is now just 0.1% away from the Fed’s target 6.5%. The Fed have stated that they will not increases short term interest rates until the rate drops to 6.5%. There have been plenty of mixed signals for traders to analyse lately but in the end, it was positive corporate earnings that won over.
Results
Our forex signals endured a difficult week this week, as volatility in risk-on markets caused stock indices to fall heavily only to reverse those moves later in the week. Finding profitable trades was no easy task as markets whipsawed on the events of central bank announcements and corporate earnings results. Our EUR/AUD trades managed to capture 161.7 pips but we lost -321 pips in dollar yen.
GBP/USD Focus
The GBP/USD moved in tandem with equities last week and the currency pair retraced losses going into the close on Friday. Although the currency spiked downwards on the non-farm payrolls number, it quickly resumed its upward trend and ended the day well above it’s second resistance level.
Although the GBP/USD was strong on Friday, the currency could be losing momentum at these levels as it struggles to hold onto gains above the 1.65 level.
On Thursday, the BOE kept rates unchanged at 0.5% and this did little to move the pound higher. As it stands, a more important announcement could come this week.
The BOE, hampered by an unemployment level that is already at target, are expected to announce a new guidance plan on Wednesday and Governor Mark Carney will deliver a speech on the new strategy. Given the soft economic data out of the UK recently, this speech could deliver some ammunition for GBPUSD bears, so traders should keep a bearish bias on the pair.
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Week Ahead
Also on the agenda next week will be US retail sales and the first speech from new Federal Reserve Head, Janet Yellen. US retail sales are expected to improve to 0.3% from last month’s 0.2% figure and traders will be eager to hear what Yellen’s plans are for the world’s biggest economy.
We will also see the ECB’s monthly report and traders will be watching to see whether there are any hints of a forthcoming rate cut from the bank. Last week, Draghi said that deflation was not a problem for the Eurozone and this caused some traders to tail back their rate cut calls. Draghi will speak again on Wednesday morning.
Meanwhile, we will see unemployment data from Australia on Thursday. Analysts are expecting the unemployment rate to remain at 5.8%.