E Markets: Short

All traders learn that there are 3 positions to have – long, flat or short – with flat sometimes the best ahead of fundamental news which risks changing the mood. This is the case today where many are still reading their emails from the holidays and not quite sure what to do about today’s one-two punch of US jobs and FOMC Powell.  

Short weeks can kill traders and this one is one for the history books with volatility and fear leading views for the entire year. The curse of trading the first 5 trading days foreshadowing the next 235 days is in play. The problem is short into events like today isn’t easy given the ongoing spike in volatility. The balancing act of risk/reward make today more about 8.31 am and less about the feel good hopes that started overnight – 1) Pelosi as the new Speaker of the House pushed a government spending bill – assumed dead in the water – but still a positive to some investors. 2) China PMI for Services jumped higher and lifted hopes that the worst fears about growth are overblown. 3) China PBOC cut the RRR by 1% with two stage easing 0.5% effective Jan15 and 0.5% more Jan25.  

Markets are back up on these stories with hope that the US jobs will be just above average and good enough to make this short week hobble home for a longer weekend rethink about risks and asset allocation into 2019. For FX players, this is a time when the USD alternatives get interesting with the EUR back in play and looking perky with hopes for a 1.1580 breakout, that would reflect less about the ECB and more about the FOMC reactions into the data – as the Eurozone 1.6% HICP headline and the even weaker PMI Composite makes the changes for ECB hikes into 2020 even less logical.

Question for the Day:Will the US employment report kill recession fears? This is the essential hope for those buying the dip in equities. There is a difficult balance to play out here where hopes for FOMC on hold or even easing matter as well. The data ahead needs to be “Goldilocks” perfect with better jobs but no need for FOMC responses. This puts the Powell speech in play as well today. A FOMC that loses its forward guidance tool and shifts to data dependency by definition increases market uncertainty. The response of the market to today’s data matters to the Fed as much as it does to the weak technicals. The US jobs report is a lagging indicator but it’s the one that remains in play even today. After the ADP report at 271,000, it seems likely that we have upside risks to the NFP with anything over 220,000 likely in the too hot to enjoy zone. 

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