Markets Await European Election Results and US NFPs; S&P 500 Headed for 1375 Test

Equity markets in Europe were lower as traders pare back positions ahead of the next regional event risk.  Election results in Germany, Italy, Greece and France will come this weekend but this will be preceded by the Non Farm Payrolls figures out of the US.  The combined uncertainty factor of these events is leaving many traders on the sidelines, with Asian stock markets seeing declines and futures in US markets mostly unchanged.  The Euro Stoxx 600 is lower by 0.5 percent, contributing to a total loss of 1.2 percent so far this week, and taking away from the 4.8 percent gain seen so far this year.

Downside momentum was added to when growth data out of Spain showed that the country has officially entered into recessionary territory and business activity surveys in the US showed that the services industry (which makes up the majority of the US economy) came in lower than analyst forecasts.  To close the week, the remainder of market volatility will depend on the results from the US Non Farm Payrolls report, as well as the Unemployment Rate, which will be released at the same time.

The immediate reaction could lack significant follow through, however, as the European elections loom and traders look to avoid any major surprises.  Some analysts have suggested that any major victories from the more liberal parties could result in anti-austerity proposals and weigh on expectations of European debt recovery.  Polling data in France is showing that the Socialist Party candidate is currently in the lead, and if this continues into the actual vote, it would be the first time the Party has assumed power in France since 1981.

More immediately, however, are the US Payroll numbers, which will come out just before the New York open and markets are expecting a rise from last month’s figures (which showed the smallest increase in nearly half a year).    Consensus estimates are looking for a rise of 160,000 job additions for the month (after the March increase of 120,000).  Estimates for the unemployment rate are calling for an unchanged result at 8.2 percent, which is the lowest level this number has been at any time in the last three years.

Technical Analysis:


 

The USD/CHF is seen in a descending triangle on the daily charts but the latest move on the short term charts has pushed the MACD indicator reading into positive territory, which suggests an upside break of the triangle.  Support to the downside is seen at the psychological 90 level and buy entries can be taken into this area.  We do need to see an hourly close above the descending trend line to confirm any triangle break however.  Initial resistance comes in at 0.9160.

The S&P 500 formed a head and shoulder pattern on the shorter term time frames, and the neckline has since broken, turning momentum negative.  The neckline was also the 38.2% retracement of the latest rally, making the break even more significant.  The next downside target is clearly seen at the next Fib support level, which comes in at 1375.

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