The US economy can regenerate itself, it has done this many times before. But really the crash was not about the state of the economy pe se. At the time of the crash, US company balance sheets were in fine condition. There were big distortions in some sectors by debt, and the crash deflated these. Thus the way the real economy is recovering is not surprising, it was not really damaged.
Did the near collapse of capital markets damage companies though, something did happen in the crash. US companies adapt and survive, especially when they have to. What tends to damage US companies is lack of a need to adapt and survive. Remember the effect of Japanese competition and the reaction to this ?
Thus perhaps they will be even stronger without so much of a loan market available. This factor itself could produce the next wave up. However the medium term effects of debt market functionality issues may be the cause of perturbations on fundamental recovery data, reflected again in EUR/USD falling today.
Good jobs reports have been good for USD/JPY, so far. This is a good way of trading news, it is cleaner, less volatile. Long term (1 month) there is space for USD to move and maybe even go back up towards that breakout. 1 week is even more positive. The problem is what happened a few weeks ago, the huge run of cash to JPY assets. To what extent will this effect any reaction (1 day is hitting resistance).
It could dampen a reaction. And always remember the tendency to price in a move before the news is released (4h upwards). But there is room for breakout from the resistance at 1 day, assuming good news and EUR/JPY is near a breakout level as well. Bad news could produce a run towards JPY again, the market is nervous.
What does all this mean for trading tomorrow. For me it means waiting to see what the report is. Indecision in valuing tends to be reflected in a move opposite to what you might expect then a move back towards the expected direction, after a classic divergent bar. It is best sometimes with news just to ride the market.
The problem with news is the complex reactions which can smash through stop losses. But this is why many traders stay out of news. But it can be a lot of fun as well.
© 2010 Guy Barry - All Rights Reserved.
