Recap: Week Ending June 7, 2013

June 7, 2013

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This past week started off with the markets pushing lower, however, with positive economic data later in the week US markets closed higher once again. With this being said, the gains were not felt around the world with many indexes in Europe and Asia closing lower. One of the larger suffers of the week was the TSX which closed at 12,374.30, down 286.92 on the week. TSX’s drop comes as both gold and silver lack any movement, creating a strong horizontal channel. This channel forms at an interesting time, as the US dollar index (DX) experienced an extremely aggressive move to the downside this past week, closing at 81.69. This push lower in the DX may be a strong sign for gold bugs as the dollar is historically inversely correlated with gold. With this being said, this downside action in the DX may just be short term as its RSI is approaching the closely watched 30 level, which is commonly perceived as oversold. As the dollar index pointed down, naturally the Euro released to the upside, making new trend high above 1.33. It was announced this week that all EU emergency aid for environmental disasters has run dry following flooding in Central Europe. The rise in the Euro also pushed up the YEN against the USD, with the USD making a low of just under 95 on the week. This level is the lowest level we have seen on the YEN in over one month. The recent run down in the YEN has pushed up the Nikkei, the principal Japanese stock index. This move has caused inflation fears, pushing up the index. If investors did not hedge themselves accordingly regarding their currency, the YEN, they would have seen any returns evaporated by the devaluation of their currency. As the YEN continues its push high, further weakness in the Nikkei is expected.  One of the more interesting currency crosses investors are following is the AUD/JPY; both currencies are considered to be some of the weakest in the world. Recently this week, the AUD broke down against the YEN, making it a target of short positions for many major currency pairs.

On Friday, both the Canadian and US governments released unemployment rates for May. Economists were expecting 7.2% (unchanged) in Canada, and 7.5% (unchanged) in the US. Results came in at 7.1% in Canada and 7.6% in the US. The Canadian figure shows that the economy in Canada may not be as bad off as most believed. This number was also supported by the creation of 95k new jobs in Canada this last month. With results like this, the economy in Canada is truly better off than expected.  In the United States the numbers were not as good, however, Nonfarm payrolls increased by 175k, beating the expected 170k. Despite the increase in US unemployment, Nonfarm indicates job growth in the US is still active and strong. The currency markets reacted with the USD selling off quickly against the CAD. After a small retracement, the CAD continued to gain strength pushing the USD to close at 1.0193 on the week.

The economic calendar for North America is relatively light for the upcoming week with the most anticipated release, Retail Sales for the month of May, scheduled for release 8:30AM Thursday. The prior reading is 0.1%. Besides that release, economists will also be awaiting the Bank of Japan’s interest rate decision (0.1% prior) which will be released early Tuesday morning. The following day, Wednesday, will be important for the British economy as the UK government released their Claimant Count change. The prior reading is -7.3k, any move between -5k and 0 would be a highly bullish sign to the struggling UK economy.

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