Markets Open Lower Despite Strong US Non Farm Payrolls; Nikkei 225 Approaches Long Term Resistance

The main event to close trading last Friday was the release of the US Non Farm Payrolls figures, with the headline payrolls figures coming in at 227,000 for the month of February.  The strong numbers not only managed to surpass relatively lofty expectations (the consensus was looking for a rise of 210,000 jobs) but the numbers for December were also upwardly revised by 61,000 jobs.  The unemployment rate held steady at 8.3% (matching the market expectation) even with a larger labor pool for the month. Equity markets are opening lower, though, as the rally this year looks to be reaching its exhaustion point and some of the positive data was expected given the improved macro data that was seen earlier in the week.

Last week saw a slew of central bank meeting and this will continue this week, with four other policy meetings on schedule.  The Federal Reserve, the Bank of Japan, the Norges Bank in Norway and the Swiss National Bank are all on tap but no change in interest rates is expected at any of the meetings. The policy statements will receive most of the attention but this doesn’t mean that the situation in the Eurozone is out of the picture as regional finance ministers and the IMF are expected to complete its final agreement on the second bailout package for Greece and any stalling here should send the Euro back through the 1.30 level against the US Dollar.

Macro data today will start with the wholesale price index out of Germany and Italian GDP, and we will need to see a positive surprise in order to reverse some of the negative sentiment generated by the International Swaps and Derivatives Association (ISDA), which released a statement saying that the current debt situation in Greece should be classified as a “credit event.”  This was exacerbated by the latest move from Fitch, which lowered the credit rating in Greece from “C” to Restricted Default.”

Asian markets are following the trends seen in other areas, after Chinese macro data showed the largest trade deficit in over 20 years for the month of February. The numbers are slightly skewed because of the slowdown in business activity during the Chinese New Year holiday but the report does show that emerging Asia is not immune to the contagion effects of the global debt problems. In the US, there is no significant macro data but we will see earnings reports from Urban Outfitters, Cumulus Media, Churchill Downs, and Coleman Cable.
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The EUR/USD is now showing a confirmed head and shoulders pattern, as we discussed last week with prices now showing a modest bounce after breaking support at 1.31. These bounces are now viewed as selling opportunities are the next downside target comes in at 1.2970. This bearish bias is only reversed if we see an upside break of 1.3290 but the MACD shows negative momentum and this is looking unlikely.

The Nikkei 225 is showing a nice rally this year but we are now coming into some very significant long term resistance levels that are likely to contain prices in the coming months.  The major area to watch comes in at 10130, as this is both a historical level and the downtrend line seen on the weekly charts. A break here would be very bullish but there is clearly more downside risk at this point and so short positions are preferred.