The market's resistance will be severely tested this week - now that all traders have returned from vacation - a massive increase in trade volumes in context of a weak market rebound. The sentiment could also be dampened down by September's bad reputation, historically the least favourable to US equities, while there are very little macro-economic indicators and corporate earnings on the agenda.
Last week, Wall Street posted its worst weekly performance since early July; however, the markets still managed to erase much of their losses last Friday after the release of employment figures for August were better than expected. The Labour Department announced Friday that the US economy lost 216,000 jobs in August, less than the 225,000 expected, but said that the unemployment rate was recorded at 9.7 per cent, its highest level in 26 years.
An increase in volume does not necessarily mean that the rebound on Wall Street is complete, as a further more substantial increase in volumes on the contrary, will be a strong argument for those who think that the "rally" of the US financial markets, which fell to a 12-year low last March, is expected to last. Last week, the S&P500 fell 1.2 per cent, the Dow Jones 1.1 per cent and the Nasdaq Composite 0.5 per cent.
Historically, September is not a good month for shares. Last year's events - the fall of Lehman Brothers, the buyout of Merrill Lynch by Bank of America or the first public aid to American International Group - have certainly not helped to improve the "bad reputation" of the month. Since 1900, S&P500 ended September with an increase from the previous month less than once every two years. Experts point out that this early autumn pattern is well known to stake holders and it may have already been digested by the market.
Health related stocks will take the spotlight this week as Barack Obama is expected to speak before Congress on the health system reform wanted by the US President himself. The $2,500 billion project, which President Obama made one of his priorities, aims to provide every American with basic care coverage. Private insurers are strongly opposed to this reform as the plan provides for the creation of a public insurance programme that they would be competing with. As support for Barack Obama's project seems to languish, investors have recently been less worried about the negative impact of the plan on private insurers. If the president manages to stimulate the debate and gain public opinion, then these stocks may suffer.
Upcoming FX key events:
It is a light week for US data releases following the Labour Day holiday. The Fed's Beige Book is due as is the latest trade balance figure. The Beige Book should reflect the recent Fed statement and minutes and discuss more improvement in the economic backdrop, though it will likely remain cautious on the outlook. The trade deficit is expected to be unchanged today. The University of Michigan Confidence figure should come in higher. There are three G10 central banks holding their monetary policy meetings this week - Reserve Bank of New Zealand, the Bank of England and the Bank of Canada. None are expected to change interest rates but their statements may be potentially market moving.
FX technical key points
EUR/USD is neutral, watch 1.3950 and 1.4550
USD/JPY bearish, resistance at 94.00, support at 88.50
GBP/USD is neutral, watch 1.5990 and 1.7050
USD/CHF is neutral, watch 1.0450 or 1.1000
AUD/USD is bullish, support at 0.8350, resistance 0.9150
NZD/USD is bullish, support at 0.6650, resistance 0.6990
Mr Longchamp is head of trading at RTFX Ltd.
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