Non-farm payrolls is always our favourite time of the month. It’s when the U.S. releases the most recent employment data and it’s always a major market mover. This month’s report — which will be released a 8:30 a.m. New York time on Friday — is especially anticipated given the heightened volatility in the market and the potential for massive reversals.
Technically, there are some very fascinating signals on key charts that indicate Friday is going to be an exciting trading day.
A chart we have been watching closely for the past few days is NZD/USD.
We noted how it broke below major trendline support and then yesterday rebounded in a retest of that support. If failed, however, after a disppointing employment report from New Zealand.
Today, despite the enthusiasm in stock markets, the risk-sensitive kiwi could hardly catch a bid. A big part of the reason were comments from Reserve Bank of New Zealand Governor Alan Bollard. He compares Australia and New Zealand:
Bollard said both countries have survived the crisis well, due to a mix of strong institutions and stimulative policies.
“However, their immediate prospects are different. Australia has avoided negative growth, and its prospects are driven by strong terms of trade, vast mineral deposits, the Chinese market, and rapid population growth.
“New Zealand has had a recession, and the pick-up is slower and more vulnerable – a difference financial markets do not appear to appreciate.
“This is particularly evident in the relatively stable cross-rate on foreign exchange markets. If financial markets can’t see the differences, they will eventually lose money, and it will hurt the New Zealand economy.”
We all know the expression “Don’t fight the Fed.” The question now, is: “Do we fight New Zealand’s central bank?”
This isn’t the first time Bollard and the RBNZ have tried to talk down the kiwi, but it’s by far the most explicit. The reason he wants a weaker New Zealand dollar is because it assists the manufacturing and exporting community.
Back to the chart: notice the final two candles. They are a candlestick shape that’s called a doji star. It occurs when you have long shadows and a nearly non-existent real body. It’s the classic sign of market indecision. It makes great sense in the kiwi because we have seen a long uptrending period but now the market is unsure if it wants to continue higher (back above the trendline) or plunge down into the 60-cent range.
What is particularily interesting about the kiwi is that it’s probably the most risk-sensitve currency at the moment due to its struggling economy and the huge run-up it has experienced in the past 7 months. Where the kiwi goes, the rest of the market may very well follow.
We are seeing similar patterns in USD/CAD and EUR/USD. Both traded in very tight ranges over the past 24 hours and are likely to experience a big move on Friday.
The deciding directional factor will almost assuredly be nonfarm payrolls. The October report is expected to indicate the U.S. economy shed 175k jobs in the month, an improvement from the 263k shortfall in September. The unemployment rate, meanwhile, is forecast to rise to 9.9% from 9.8% the prior month.
Look for something above 250k, or below 100k to really get markets moving. If the unemployment rate rises above 10%, look out.
