Happy Independence Day to those friends who are located in the U.S. of A. Most of the world, of course, is not taking the day off in order to celebrate the U.S.’ birthday, and two central banks, the European Central Bank and the Bank of England, kept their benchmark interest rates unchanged. However, both President Draghi of the ECB and new Governor Carney of the Old Lady (the latter was recently traded from the Bank of Canada for future draft choices; he played his minor league ball at Goldman Sachs) went out of their way to observe that bond yields are unjustifiably high in their respective jurisdictions.Â
The lack of movement on rates was expected, but the comments constituted new information, and the market reaction was rapid. The Dollar came higher (or, if you prefer, the Euro and the Pound came lower), stocks jumped, and bond prices went up/yields went down. U.S. futures also benefited, with the E-minis coming as high as 1624.50 (they are at 1622.50 as I type). The bullish tone may increase the risk that futures (and subsequently stocks) will get hit if tomorrow’s non-farm payrolls number is strong enough to remind the market that the FOMC is likely to begin withdrawing QE as early as September. I doubt that Dr. Bernanke will be heard complaining that U.S. yields are too high.Â
We trade technically here, but it’s important to be aware of when potential market-moving central bank meetings or other phenomena are scheduled. Someone who went home happily long of EUR/USD on Wednesday without having a stop in place gave back a Euro (from 1.3016 at 7 AM EDT to 1.2912 currently), which is both expensive and annoying. Stops can be unreliable in FX, since a fair amount of slippage can occur, but they are still potential lifesavers overnight and on holidays.Â
Going into tomorrow’s NFP number, 1.3075 to 1.3100 or so looks set to provide some resistance in EUR/USD, utilizing the daily chart. A retest of the recent low around 1.2880 would be the expected outcome, while a move much beyond 1.3200 would indicate the potential formation of a new uptrend. The trading after the release tomorrow could be unusually erratic; it will be relatively thin, and it will be difficult for those caught on the wrong side to extricate themselves gracefully.
Enjoy the holiday, and best of luck tomorrow!
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