The first week of the month is always relatively busy for financial markets and that proved the case last week as we saw comments from the ECB cause ripples in the EUR/USD. Meanwhile, US non-farm payrolls caused equity markets to stumble.
The Nasdaq was the week’s poorest performer and the index lost 2.60% on Friday following the latest US payrolls data. Last month’s number came in at +192k, down from the expected 200k, and the headline unemployment rate stayed at 6.7% where 6.6% was expected. However, it wasn’t all bad news as last month’s figure was revised up to 197k claims.
As noted, stock markets reacted badly to the number and US Treasuries advanced. Biotech and Internet stocks were hit particularly hard as traders worried about the high PE multiples afflicting some of the market's strongest performers.
In currencies, the EUR/USD suffered as the ECB Chief Mario Draghi indicated that the bank would take further steps to combat deflation. The currency dropped at least 100 pips from Wednesday through Friday, although many pairs were choppy following the non-farm payrolls number.
Upcoming Week:
The week ahead looks likely to be dominated by Asian news since the calendar is relatively quiet for the US and Europe. Save for FOMC meeting minutes (Wednesday) and the University of Michigan confidence number (Friday), US traders will not have much to go on. Even the latest FOMC minutes promise to be a relative non-event after Fed Head Janet Yellen reassured traders about her press conference remarks in the previous week.
In the UK, the Bank of England will meet to discuss interest rates on Thursday, but this will only be a big event if the bank surprises markets and this is unlikely.
In Asia, however, it is a different story and the first key event will be the Bank of Japan meeting. Traders believe that it is only a matter of time before the Bank of Japan moves to expand its asset purchasing program and traders will be anticipating big moves for USDJPY. There will also be important data out of China from Wednesday as well as unemployment, home sales and consumer sentiment out of Australia.
Our forex signals suffered a little last week but we made significant gains in the GER30 (Dax) index. We managed to capture over 34,080 points in GER30 as are signals responded well to the volatility in equities across the board. We also took 84.2 pips from AUDUSD (from 22 trades) and 63.2 pips in EUR/USD (from 41 trades).
USD/JPY
The USD/JPY has gone from strength to strength in recent weeks as the currency has embarked on another bull phase through the 103 handle, although the currency did drop back on Friday. The next big event for the USD/JPY traders promises to be the Bank of Japan policy meeting with many traders preempting another dovish policy move by officials. With Japan's sales tax being hiked from 5% to 8%, BOJ officials will be keenly aware of the implications for the economy and how increasing the sales tax last time out led to recession.
As a result, some traders are positioning for another dovish outcome and have bought up USDJPY in advance of the meeting. This has seen the USD/JPY up through the 103 barrier with ease. However, if past events are any guide, traders may be getting ahead of themselves slightly. Although there is no doubt that the BOJ have become significantly more aggressive as a result of Abenomics, the bank does not always like to play into the market's hands.
As a result, there may be more value going the other way early next week and shorting USDJPY as the meeting nears. Stops should be kept tight, just in case.
