Believers in seasonality on Wall Sreet have hard times. Not only August tuned out poor despite being historically good, but September looks bound to be bullish despite the bearish heritage. Much is attributed to the US labor market which gave more warning signal in August (rising claims) but ultimately the payrolls report for the previous month didn’t confirm them, adding more good news to the higher Conference Board and industrial ISM.
The S&P500 futures drove easily through 1098 pts. (a minimum target after defending a support at 1037 points) and are on their way towards 1147 pts. The darkest scenario seems to be back on the shelf, but one shouldn’t turn too optimistic too soon. The labor market data together with mentioned releases suggest a soft-patch scenario (noticed a slide in ISM services to the lowest since January?) – better than feared recession-deflation combo but still far from a brisk recovery. A soft patch scenario corresponds well with a broad-range consolidation which seems to be the prospects for equity markets in coming months.
EURCHF - Second weekly hammer
It is quite unique for a pair of two currencies to react the most on the data from an economy not directly linked to any of them. It is even more unique for the economic releases to affect currency pairs without the economy’s currency more than those including it. But this is the case with the EURCHF recently, reacting mostly to the US data and actually reflecting global sentiment better than any other pair (even better than USDJPY). With this in mind, it wasn’t so much surprising to see the pair skyrocketing on Friday after the payrolls data. As a result, the pair which seemed bound to decline, got a second chance for a reversal. There are two hammer candles on the weekly interval and bodies of both candles are above the minimum from June. If bulls on the pair take this opportunity, a correction may lead at least to the upper line of the mid-term declining channel.
Events to watch - Monetary policy in Asia
Unlike the previous week, this time the US calendar is very light. The only figures worth noticing are trade balance and weekly claims, both on Thursday. Moreover, the US begins the week with a holiday, heralding an easy Monday. This leaves some spotlight for Australia and Canada, with their rates decisions and key data (including employment). Some excitement will probably start with the Asian trade on Tuesday with the RBA and BoJ decisions. Both are most likely to stay put. The RBA is on "wait and see" approach. While some speculated even about a cut, after the strong Q2 and recent upbeat data from the US it is out of question. Therefore Aussie investors will pay more attention to the employment data (Thursday). BoJ extended the liquidity program last week on the emergency meeting and even though it didn’t reverse a course on the USDJPY (despite favorable global environment) the Bank is unlikely to act so soon again. Nevertheless, a strong yen is sure to encourage speculation.
Przemyslaw Kwiecien, Chief Economist, X-Trade Brokers India