I've noted in the past month what I believe to be important support for the DIXY in the 78.50-78.75 price range. The dollar managed to test and hold that level this week, although it did so meekly. More specifically, the Euro fell ~0.5% this week against the dollar and the but the commodity currencies managed strong gains, led by the kiwi dollar (1.57%), the aussie dollar (1.24%) and the loonie (0.85%). Much of the outperformance of the commodity currencies came after the BLS released the latest labor statistics, showing a decline in the unemployment rate to 8.3%:
The gains in employment were exceeded the expectations of the most optimistic analysts on the street. The DIXY weakened upon this news and the stock markets surged. Leading the way were financials, industrials, consumer discretionary, basic materials, emerging markets and copper. The yields on the 30-year bond and 10-year note also shot up dramatically.
-XLF is up 13.31% YTD:
-XLI is up 10.34% YTD:
-XLY is up 8.23% YTD:
-XLB is up 13.10% YTD:
-EEM is up 15.68% YTD:
-JJC (Copper-tracking ETN) is up 14.19% YTD:
-TLT (Long bond ETF) is now down -3.86% YTD:
It is remarkable to me the change in investor sentiment in such a short time. Going into the end of last year, pessimism reigned. The consensus was that investors needed to be positioned in defensive assets like consumer staples (XLP +0.2% YTD), utilities (XLU -3.2% YTD) healthcare (XLV +4.41% YTD), and treasuries. Now, in a little over a month that paradigm has been turned on its head. Investors have moved into more cyclical sectors and have taken on greater risk. The following ratio chart captures this well:
This chart, the ratio between the corporate bond fund JNK and the TLT, has a similar technical pattern to the aforementioned outperforming sectors. Is this what Bernanke was hoping for?
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Gold wasn't too happy with the employment news!
In this daily gold chart, I've drawn the nearest angels and also fibonacci number moving averages. There is a lot going on there -- I don't think each and every one of these overlays are important support and resistance areas. I do think the $1764 is critical: Jim Sinclair and James Turks discussed this here.
With the unemployment data surprising to the upside, it seems as if some investors took off the end-of-the-world trade. Barry Ritholtz , Rick Santelli and others debated whether or not these employment data are actually believable. From a technical perspective, what is true seems inconsequential in the shorter-term time frame: the markets boomed and gold sold off strongly.
I find it extremely interesting that the day surprisingly 'good' employment data spurred the stock markets higher, gold is rebuffed at the price ($1,764) Jim Sinclair calls the moment in which 'the king has no clothes' and after which gold would rise in an exponential rather than arithmetic fashion.
Personally, I don't put much stock into BLS data. I will be eagerly awaiting what these data show after John Williams of ShadowStats takes a long look at them. However, I think the markets heard what they wanted to hear for the time being and are fulling buying into an improving economic outlook. Even a meek US dollar couldn't help gold stabilize on Friday. Who needs gold when the outlook for economic growth is looking up?
Gold found firm resistance this week at $1,764 and I suspect that after this considerable gain in price from the low $1,500's it may be due for a period of consolidation. The world isn't going to end this quarter.
Articles cited:
Bloomberg -- S&P 500 Extends Best Start
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