Vantage FX | Aussie Dollar strong as an Ox | 1st November 2012

The Aussie Dollar was strong as an ox over night but just couldn’t get through the 1.04 region as the sellers held steadfast and globally markets were in the midst of what we’d call thin rangey trade. The last day of October was not the positive day that many hoped it would be. Data and earnings reinforced once again to markets what a weak economic outlook the globe currently faces.

So early Stock and Euro strength that Asia handed European traders was soon washed away and negative thoughts and price action emerged once again.

European data showed that the unemployment rate hit an all time record of 11.6% from 11.5% in August. Continuing the theme of a youth lost and a future in peril youth unemployment in the Eurozone is sitting at 23.3% with Spanish youth unemployment a staggering 54.2%. There are now 18.5 million Europeans unemployed and more cuts are coming from Corporate Europe.

In the US eyes were on the Chicago PMI which although it rose to 49.9 from 49.7 was still in contraction territory and well below the punditry’s estimate of a rise to 51. Interesting for me in the internals was the weakness in the Employment index which, at 50.3, is the lowest level since December 2009. Production also fell sharply from 55.4 to 51.8 – ouch. The Milwaukee equivalent was below 50 for the 4th month in a row and the employment cost index  showed just how hard it is for US workers to eke out any gains.

The global economy is in real strife still and dipping which is something traders and investors need to remember even though we know that economics is not always markets and that markets don’t always react in a linear way to economic releases the important point is that ebullient stock pricing is at risk at some point in the future of a serious and material trend change. This will impact a lot of markets so it is important to keep an eye on it.

Stocks

US markets have hardly moved and stocks on the NYSE  have only just come back into the black in the last hour of trade after Europe handed them a poor start with stocks once again buffetted by weak earnings. The S&P has been in negative territory for most of the day and only move up in the last hour and is up just 0.22 of a point or 0.02% to 1412. The Dow is off 0.08% and the NASDAQ is 0.36%.

Stocks in Europe were hit by the unemployment data but also by the earnings report by ArcelorMittal, which is the worlds biggest steelmaker, that it had lost $709 million in Q3 and was slashing its dividend. Revenue was down 18.6% continuing to reinforce our theme that global de-leveraging means lower aggregate demand means lower revenues and profits.

So at the close of play the FTSE was down 1.15%, the DAX dropped only 0.33% after German retail sales surprised to the topside while in France the the CAC was 0.87% lower. The FTSE suffered a little under the weight of the news that even though last week’s Q3 GDP showed that Britain had exited recession Consumer Sentiment released overnight was at a 6 month low of -30 from -28 in September with the 12 month outlook also falling 2 points

FX Markets

The Asian stock market rally pushed the US dollar lower yesterday and handed Europe a baton which it took up with gusto. The Euro made a high of  1.3021 before pulling back under the weight of the equity reversal and the resultant US dollar strength. Euro is currently on the lows since its high at around 1.2944. I’d just characterise this as range trade in the run up to some very important Asian PMI’s today and then non-farm payrolls on Friday night.

Perveresly however the Pound has rallied and maintained its strength even as the USD has done better against other currencies. As you can see in the chart above of the daily GBPUSD price action the 6 week downtrend was broken overnight. However for this cross to kick on materially without a stock market rally I would need to see EURGBP break the bottom of the uptrend channel that we highlighted yesterday and which comes in today at .80097.

For the Australian dollar try as it might to get up through 1.04 it just cant breach the Wall of sellers that are lined up there at the moment. The high of 1.0399 overnight was just under and if you loook at the 15 minute charts you can see the AUD sat just below there for the best part of European trade – perhaps it was a London fix set ramp for month end – I have no way of knowing but it dropped down to  the 1.0350 region and sits now at 1.0373.

Today’s Asian PMI’s are going to be critical for the Aussie and given where it sits good results will see the sellers challenged again, particularly as this would be against the run of data over the past few days.

In other currencies USDJPY is consolidating its recent move right on top of the 200 day moving average at 79.52 and it hasn’t closed below this average for the past 8 days. Elsewhere the Norwegian Krone (NOK) was higher after the central bank said it wasn’t going to sell Krone to equalise the oil revenues it gets even though it has put back its tightening cycle into next year from late this year given the Krone’s dampening impact on inflation and the economic outlook.

Commodities

Crude was 0.49% higher to $86.10 Bbl but off the highs for the day  which suggests this was a USD move not a crude specific move. Gold was similarly off its highs and although it remains in a daily downtrend the MACD in the chart below is suggestive of a little further gain short term. Silver was up 1.57% and the Ags rose aalso with Corn up 2.06%, wheat up 0.90% and Soybean 0.86% higher.

Datawise PMI’s in Asia and in Australia we have the import and export price indices and the RBA Commodity price index. Tonight we see the release of Markit Manufacturing PMI in the UK, its all Saints day in a lot of Europe and then we get ISM in the US as well as the Markit PMI and ADP employment survey as well as jobless claims.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

NB: Please note all references to rates above are approximate and should not be used for trade reference.

Comments

  1. Greg McKenna says:

    Cheers – thanks.