Vantage FX | AUD still strong but stocks rally eclipsed late | 14th November 2012

What an amazing last 16 hours or so with markets going from hand wringing over worries about Greece again, after the postponement of any aid again from the Eurogroup meeting, to outright cheering and hand clapping and then hand wringing again late in US trade.

There seem to be two catalysts for the turn around in sentiment  which saw the S&P open at 1370 before rallying to 1390 at the high. The first was speculation of a huge turnaround by Germany from dragging its feet on aid to the potential payout of 3 tranches at once. The source of the rumour was a report in Bild-Zeitung citing unnamed German Government sources and indeed I saw a comment attributed to German Finance Minister Schaeuble which seemed to confirm that paying out the  three tranches is on the table. The second catalyst, which saw Spanish stocks surge into the close, was a rumour that Spain was going to ask for help and that as a result the ECB would be buying Spanish bonds soon.

Equally helpful I guess though was the better than expected Greek auction where it raised €4.06 billion of 4 and 13 week bills and so looks likely to be able to pay the ECB the €5 billion it needed to find by Friday. Earlier however the ZEW survey of German economic sentiment was a shocker at -15.7 versus -7 expected (how did the pundits come up with that guess?) and from -11.5 previously. The overall Eurozone ZEW survey was also weaker at -2.6 from -1.4 previously.

Now after a bit of a period of weakness if you are a technical trader or trend follower you know that there is always a consolidation – sometimes price and sometimes just time. So the question is whether this is Turnaround Tuesday and the start of a bigger bounce or just a pause that refreshes so the bears can sell again.

S&P 500 rally

If I look at the global bellwether of stocks and risk – the S&P 500 – then I think there is more to this rally today than just a one day wonder. The negative DMI has slowed, the MACD is at an extreme level and trend line support has been found. Add to that that on this chart it looks like we might have a swing low. So I’m lifting shorts which would be reinstituted only if the price falls through 1362 or I get a signal on any rally to get back in.

Stocks

At the close of play European stocks were higher with the FTSE up 0.33%, the DAX was flat while the CAC rose 0.56%. As noted above  the market in Madrid kicked quite a bit higher into the close and was up 1.76% on the day.

In the US the glow from Europe was aided by an earnings report from Home Depot which reported better earnings than expected and upgraded prospects on the back of improvements in the housing market which was good news for the company and the market in the US.

But in the US there has been a massive reversal since I started writing this report about 2 hours ago and the S&P 500 is now down 0.19% to 1377, the Dow has dropped back to 0.24% and the NASDAQ is off 0.15% with 15 minutes to go.

Yesterday amid the Euro selloff and the generalised concerns over Greece that pervaded trade Asian stock markets were under intense pressure. the Nikkei fell just 0.18% but the Hang Seng was 1.13% lower, the Shanghai composite fell 1.51%, Taiwan was 1.81% lower and our own ASX All Ords dropped 1.47% amid widespread concern about global growth – at least that was the excuse at the time. How we go today depends on what the market does in the next 25 minutes in the US.

But clearly there is a warning here – not just for stock traders but for all traders at the moment – the past 24 hours trading was scatty and volatile with stocks and currencies bouncing up and down quite quickly. Its a news influenced market and traders are changing their view quite quickly so caution is warranted. For the techicians let me add that the S&P has pulled up exactly where it should have on the dailies but for the shorter term traders there are cleary lots of catalysts and many are counter to each other. As the Sargeant used to say in Hill Street Blues - “be careful out there”

FX Markets

Up and down all over the place for the Euro and GBP overnight with a lot of long legged candles on the daily prices for both these currencies against the USD but also on the crosses. Volatile trade after a down trend like we have seen can be the sign of a turn in my experience but overall like the S&P above I’m not bullish just reducing shorts.

EUR USD

As you can see in the  chart above Euro is still in a very strong down trend and longer term I am targeting 1.20/1.21 but last nights price action was a tentative sign that we might see a bounce. If I go one time frame down from the dailies to the 4 hour charts I see a move through 1.2740 opening the way for a run higher – but it has to get through there first.

Range wise  Euro had a low of 1.2660 a high of 1.2726 and sits at 1.2706 at the moment but is roughly unchanged on the past 24 hours. GBP is the same – unchanged on 24 hours but having traded down to 1.5855 and up to 1.5915 sitting at 1.5875 presently. The Yen likewise sits at 79.39 a little stronger versus the USD as is the Aussie which has had trouble getting through that 1.0440/50 region again. It is a messy daily chart for the Aussie with no apparent trend so I prefer the AUD crosses.

Commodities

More Crude news overnight with the IEA releasing a downgraded demand  forecast for oil for the 4th quarter of 2012 . MarketWatch reported that,

The IEA, in a monthly report released Tuesday, cut its forecast for fourth-quarter global oil demand to 90.1 million barrels a day, a reduction of 290,000 barrels a day, citing the impact of Hurricane Sandy in the U.S. and ”persistent weakness” in Europe.

Crude was 0.53% lower to $85.12 bbl and gold fell a similar amount to $1,721 oz. Silver continued to be high beta gold dropping 0.98% to $32.19 oz while the Ags bounced a little after the sharp sell off over recent days. Corn was up 0.63%, Wheat rose 0.26% and Soybeans were 0.67% higher.

Datawise In New Zealand we get retail sales which will be interesting for AUDNZD, then we get Westpac Consumer Confidence in Australia and the Wage Price Index. Indian inflation price data is out this afternoon and then we’ll be watching unemployment in Britain, GDP and unemployment in Portugal, Eurozone industrial production and a speech by BoE Governor King in European trade before we head to the US for retails sales, PPI, Business Inventories and the FOMC minutes.

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.

You can find me on Twitter @gregorymckenna