The US Dollar saw a modest rally to start the week, after losses seen on the release of Friday’s disappointing Non Farm Payrolls figures. Holiday-thinned trading conditions remain the main theme, however, as Australia, New Zealand and Hong Kong markets remain closed. Data out of Asia showed that consumer prices (CPI) in China increased more than traders had anticipated but the overall reaction was limited as traders slowly re-enter the market to start the week.
The US Dollar remains favored as recent comments from the Federal Reserve suggest that any chances of additional quantitative easing stimulus are diminishing slowly while most of the other major central banks are altering their bias towards more accommodative stances. This is likely to keep the Dollar supported in the coming months against most of its counterparts.
The Non Farm Payrolls figure did miss estimates, however, coming in at an increase of 120,000 jobs for the month of March. Analysts are attributing this disappointment to changes in weather but the unemployment rate did see a small drop to 8.2 percent from 8.3 in February. Average hourly earnings did see a small rise of 0.2 percent for the monthly figure and 2.1 percent on a yearly basis.
Other headlines to start the week will likely focus on the two-day Bank of Japan monetary policy meeting, with could possibly lead to further policy easing and a weaker Yen. But even with no change in policy, the reaction is likely to be limited as the finance ministry is likely to maintain its dovish tone on the economy even if there is no direct change in its asset purchase programs.
The 80 level in the USD/JPY is a clear line in the sand for many traders and it is unlikely we will see much of a dip below this level, as many will look to establish new longs on the weakness. The Federal Reserve Chairman (Benanke) is also scheduled to give a speech today but the discussion topic does not directly deal with monetary policy.
The data calendar is mostly light to start the week, but we will have the RICS Housing Price Balance and the Lloyds Employment Confidence numbers in the UK. This will be followed by the monthly Trade Balance figures in China and the Wholesale Price Index and Trade Balance out of the Germany. Expect risk themes to be the main driver to start the week as trading volumes slowly return to normal.
Technical Analysis:
The USD/CAD remains caught in its longer term descending triangle, with prices failing to convincingly break support in the 0.9790 region. Given the choppy nature of the breaks seen thus far, we need to see a weekly close below this level for be drawn to the bearish argument and until then, the pair remains a buy on dips. A break of moving average resistance just ahead should build the momentum for an upside triangle break.
The S&P 500 posted a very bearish candle to close the week on Friday, as prices broke support at 1380 before making a modest bounce. The next short term level to the downside is seen 15 points lower, as this level marks the 61.8% retracement of the latest bull move on the 4H charts. Resistance has moved down to 1395 and a break of this level will take pressure off of the downside. Longer term, however, the view is bearish, with the double top at 1420 seem containing prices
