Clouds of Uncertainty as Traders Return From Holiday

Last week was a holiday shortened trading week for many traders.  However, even with equity markets being closed on Friday (and some markets today as well), the futures  and Forex exchanges have remained open as usual.  As a result, rather than pushing back or forward the Non Farm Payrolls report, it was released as usual on Friday, even as few traders were around to trade on the news.

After two consecutive gang buster reports, the Friday numbers were worse than expected, coming in at 120,000 new jobs versus forecasts of just above 200,000.  But, the Unemployment rate did drop to 8.2% from 8.3%.  As could be expected, the dollar was lower after the report, especially seeing weakness against the Japanese yen.  However, other than against the yen, the dollar has rebounded, as the worse than expected NFP results triggered a late drop in equity futures on Friday, which led to risk selling and dollar buying.

With that backdrop, traders begin to return back to work this week.  For traders, the big question is what will the Fed do next? Between conflicting statements from Fed Chairman Ben Bernanke and other central bank members, as well as US economic results that show both a growth slowdown and continuation, the future is looking unclear.  The happenings in the US, are also coinciding with a return to worries from the EU, where yields on sovereign debt from PIIGS members has been rising again.

With all the confusion from the US and the EU, the Japanese yen would be considered a safe bet to invest in until the dust settles.  However, with the Bank of Japan stating that it prefers a weaker yen and is willing to intervene to get it, yen crosses may not be the best place to store cash either.

So What’s A Trader To Do?
Three areas that are worth focusing on this week are Ben Bernanke’s Speech today, Tuesday’s BoJ Interest Rate Meeting, and the upcoming US corporate earnings reports.

At today’s speech, traders will be awaiting to see if Chairman Bernanke mentions Friday’s NFP results, and touts the need for faster growth to stimulate jobs.  Another round of the need for greater economic growth will be expected to once again send the dollar lower, with Gold and the yen possibly moving higher as a result.
At Tuesday’s BoJ Meeting, attention will be towards Japanese deflation, and whether the BoJ again states that they will work to prevent it.  Such rhetoric at the beginning of February helped trigger across the board weakness in the yen, which has only recently seen demand returning to the currency.

Last, with Alcoa set to release its earnings after the close of US trading on Tuesday, it will mark the official opening of the first quarter earnings season.  The event is especially important as equity prices have been looking “toppy” after a 30% move higher in the S&P 500 since last October.  As such, stocks could be vulnerable to a pull back, if companies fail to show much of a an optimistic forecast for the future.