Price action has turned decisively bearish and on the daily chart the MACD is now below zero. Stochastics, while at oversold levels, simply highlight the weakness seen in the market. A move to 5142 (the 38.2% retracement of the June to October rally) can’t be ruled out in the early parts of next week, especially if we get a strong non-farm payrolls reports tonight. If you look at Bollinger bands on the daily chart; the index is oversold, however like stochastics, this highlights the weakness in the price action and therefore a sell-on-rallies bias should be adopted. What’s more, the A$6.5 billion of volume that went through the market yesterday was 27% above the year’s average.
The ECB didn’t give anything away in its central bank meeting overnight, and the market clearly saw its rhetoric as priced in and thus there seems very little the bank can do from here using conventional monetary policy to support inflation and liquidity. This is a bullish development for the EUR and I highlight EUR/AUD because it printed a higher high overnight and is now trading at the highest levels since May 2010. A move to 1.5249 (the 38.2% retracement of the 2008 to 2012 sell-off) can’t be ruled out in the short-term.
After a strong Q3 GDP revision (+3.6%) and ADP payrolls report yesterday, the market now focuses its attention on tonight’s US non-farm payrolls report at 00:30 AEDT and consensus expects 185,000 jobs to be created. The range from the analyst community is 230,000 to 115,000 jobs, but the market is probably positioned for a number above consensus, hence we have seen the Dow Jones index down five days in a row. Traders will also be looking at the unemployment rate (expected to print 7.2%) and hourly earnings, but the risk is we get a ‘blow out’ number of over 250,000, which would cause a big spike in volatility as traders will price in a December taper from the Fed.
It’s hard to go past the price action in Qantas and this clearly remains bearish. The market is now keen to see if Moody’s cut QAN’s credit rating; which will only add to the woes. UBS cut the stock from neutral to buy rating yesterday and there will probably be other brokers suggesting to clients that they also don’t see the stock as a buy. After finding reasonable buying from its intra-day low, the issue now is whether the stock can fill the gap to $1.185 from yesterday’s open.