Vantage FX | Crude drops 3%, Aussie rejects 1.04 again | 21st November 2012

The housing data out of the US overnight was fantastic and speaks of an enduring recovery in that sector of the economy but stock markets in the US still finished lower after Ben Bernanke gave a speech and a Q&A session where his honesty was reward with a sell off when he said that the Fed didn’t have a magic bullet to fix the Cliff or infinite powers to sort things out.

Bernanke was concerned about fiscal austerity at a state and local level but he was positive on housing and also noted at the end of his speech that,

cooperation and creativity to deliver fiscal clarity–in particular, a plan for resolving the nation’s longer-term budgetary issues without harming the recovery–could help make the new year a very good one for the American economy.

So if the Fiscal Cliff can indeed be avoided even with the other headwinds facing the US economy Bernanke things things could be Okay – lets hope so.

On the data front overnight we saw German PPI was lower than expected coming in flat for the month and only 1.5% yoy in October while in the US there was euphoria over the big uptick in housing starts 894,000 relative to expectations of 840,000 has many pundits now updating expectations for the addition to growth housing could provide in 2013.

Closer to home also talking overnight was Glenn Stevens Governor of the RBA who said that while the RBA recognises that further easing may be required over time the overall improvement in the global environment and the slight uptick in the recent inflation data combined with the still large impact of the mining boom (he was quite sanguine on it) meant that sitting pat for the moment seemed the prudent thing to do. Governor Stevens also was quite open about the RBA keeping some of the transactions it has done with other Central banks and Sovereigns on its balance sheet as that seemed the proper thing to do given the elevated level of the AUD.

Stocks

At the close Europe’s bourses weathered the downgrade of France yesterday from AAA by Moodys well and closed mostly higher. The FTSE rose 0.18%, the DAX was up 0.69% and the CAC was up 0.65%.

Big news in the US equity market overnight with Hewlett Packard taking an $8 billion dollar write down on a company acquisition which knocked it shares down over 10%. SO as we near the close with 30 minutes to go stocks are staging somewhat of a comeback from the lows so it will be interesting to see how they close. At present the S&P is off 0.16% from a low of around -0.66% earlier and the S&P sits at 1384.71. The Dow is off 0.22% and the NASDAQ is off 0.27%.

In Asia yesterday it was more mixed with the Nikkei down 0.12%, the Hang Seng 0.16% lower and Shanghai off 0.40%. In positive territory at the close were the KOSPI up 0.64%, the ASX All ords up 0.57% and the Straits Times up 0.27%

FX Markets

The USD closed higher against the Yen again overnight and I still think that this one is going substantially higher in time.

While the USDJPY looks a little overdone on the dailies at the moment and is probably due for some sort of pullback soon on the weeklies as you can see above this rally has broken a significant down trend line and is really only just getting going. As I have written recently this is a portfolio position for me and i think it is going significantly higher.

The EUR is flat on the day after trading 1.2763 to 1.2828 while the Aussie is the worst performer of the big 6 currencies down 0.37% at 1.0362 as I write. Just like yesterday’s equity induced rally so the Aussie has been knocked off its pedestal above 1.04 overnight as it once again rejected the uptrend line it broke down through last week. Please see my post from this morning on the AUD’s new reserve status.

Commodities

Even as the Israeli’s and Hamas continue to hammer each other there is talk of a ceasefire on its way and this knocked crude lower – or at least that was the report –  with Nymex crude futures dropping 2.53% to $87.02 Bbl but it seems to be finding a bit of support from the trend line that it broke up through the previous day.

Gold fell about $11 oz or 0.62% while Silver was up 1.21%.

Datawise The Westpac Leading index is out this morning for Australia and then Japanese trade data and the BoJ’s monthly economic survey. With Thanksgiving tomorrow tonight we get jobless claims, Markit manufacturing PMI, Reuters Michigan Consumer Sentiment and Leading indicators.

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.

Catch me on Twitter @gregorymckenna or @FX_Global