The equity markets certainly took the February U.S. employment report as a green light to buy, as the unemployment rate held steady at 9.7 percent and non-farm payrolls were a bit better than expected, falling 36,000. However, if commodity prices start getting ahead of themselves, the Federal Reserve is going to find themselves in a tight spot; inflationary pressures rising but simultaneously choking off spending. It’s important to remember that what we’ve seen so far is a stimulus recovery, not a consumer recovery. And of course the U.S. is still shedding jobs. It’s just that now they’re losing the equivalent of a mid-sized town every month instead of a city. You know what I say, less bad…
U.S. Dollar
The U.S. dollar remains on a bullish path and may regain some of its lost momentum following Friday’s decent employment numbers. We’re still continuing the theme of less bad being the new good as job losses of 36,000 was a better result than the expected loss of 75,000. Looking at the details, any improvements in the job picture came from the private sector, something investors are going to like.
On a technical basis, the ICE U.S. Dollar Index futures contract had made a sharp break below the moving averages, but has since posted a solid rebound back to the 10-day moving average. A close on Friday, march 5 at 81.00 or above basis the June contract is going to look good. Support for June is at 79.90 and resistance is of course overhead at the recent highs. The Relative Strength Index (RSI) has tapered off somewhat with the recent consolidation, but the lowest reading so far has been 50, so on all counts the U.S. dollar remains a buy.
Canada Dollar
The Canadian Dollar may finally have chosen a direction. While trading levels are still inside the broadest confines of the sideways channel that’s been in place since last October, the technical indicators are now more bullish than they’ve been for some time. The 10- and 20-day moving averages are rising roughly parallel with one another. The RSI is climbing with trading levels and reads 65, the highest level since mid-January. Support for the June contract is found at 0.9650 and again at 0.9500. Critical resistance is overhead at 0.9800. The C$ has everything going for it right now to make a test of parity again, so if it fails to break 0.9800 this time we will instead have a long-term top in place, but I wouldn’t bet against strength. In my opinion, traders should be long Canada dollars with stops set back to 0.9500.
Euro
The euro currency is still consolidating its recent declines, but it paints a pretty consistent, inverse picture to the U.S. dollar, so I have to believe that upside will be minimal beyond what we’ve already seen. Last week I anticipated some additional strength, but the technical picture just doesn’t support that anymore. The 10-day moving average has remained below the 20-day, and in fact is beginning to show signs of pulling away again. The RSI has risen subtly but never climbed above 45 and is presently pointing back down and reading 38. Trading levels have now also declined below the moving averages so I have to suggest traders be more aggressive in establishing short positions. I recommend selling June euro at current levels (1.3575) and risk 1.3800. The preliminary target is 1.3200.
Australian Dollar
Like the Canada dollar, the Australian dollar appears to have clarified its intentions somewhat, and now looks poised for a move higher, albeit at a slower pace than its northern cousin. The 10-day moving average is above the 20-day, and although the averages are not advancing aggressively, trading levels are above both averages, and the RSI sits at 58, in a rising pattern. I suggest traders consider going long June Aussie, with a stop-loss at 0.8700 and an expectation that the market will at least test the previous high at 0.9200.
Gord Weisemann is a Senior Market Strategist based in Toronto, and is accepting Canadian clients. He can be reached locally in Canada at 416-369-7909 or via email at gwiesemann@lind-waldock.com.
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