Vantage FX | S&P hits new all-time closing high, Aussie and Euro rally | 30 April 2013

April 30, 2013 By Leave a Comment

2013 is going to go down in my life as the year that I discovered that the creatures of Enid Blyton’s “Magic of the Faraway Tree” that I read as a boy are real. Most poignantly real in 2013 is Topsy Turvy land where everyone walks on their hands and everything is upside down. Because 2013 is the year where bad is bad but bad is also good, where good is bad but good is also good. Of course I’m talking about economic releases here and how the market constantly seems to come back from the brink to find the good in the bad because it means more free money and lower rates for longer which means the discount rate on the cashflows being assessed for companies stays at or near zero for longer making those cashflows worth more than in a higher interest rate environment.

And so it was that Risk was back on and markets are more ebullient across the board overnight after the new Italian government was sworn in and a combination of low inflation in Europe and stronger data in the US buoyed the equity market bulls and growth hopefuls. That  sounds more negative than it should be because the price action is just the price action and the new all-time closing high of 1594 in the S&P is the single most important signal that any trader could take away from last night as to the tone of the market.

You can argue with the price action all you like, you can point out the risks to the technical outlook if the now almost 5% lower level of 1520 breaks as we did when it got close but the reality is that the market just wants to keep going up. Indeed our Jimmy R indicator has remained in a bull trend since the 7th of December last year at 1401. So whatever the rhetoric we may feel the indicator based on one of the best long term trend followers  of all time process is still shouting at us that it is still a bull market and highlights that the Barron’s front page of “Dow 16,000″ from a week or two ago may not be the top indicator that many had thought – we were agnostic because we think you need more than one magazine cover to achieve the necessary psychological settings in the market.

Anyway it was an interesting night with what might be considered weak data in Europe having a positive impact on markets because it increased the chances of an ECB rate cut. Data like the fall in European business climate from -0.75 to -0.93 or the drop in economic sentiment from 90.1 to 88.6 or even the drops in industrial confidence or the fall in Italian business confidence or the Drop in German CPI which no doubt reflects weak demand, was all taken as positive.

In the US data on personal income and spending was on balance weak with spending up 0.2% against expectations of a flat result but income grew at half the expected rate of 0.4% printing just 0.2%. Both numbers are a big step down from the February results. Pending home sales however jumped 1.5% better than the 1% rise expected but the Dallas Fed manufacturing survey plunged from 7.4 to -15.6 against +5 which was expected.

So as you can see it really is a topsy turvy land and in any other environment than the Fed’s free love and the coming ECB free love and money regime markets would be off. but they are not and you can only trade the market in front of you so whatever my rhetoric we would beseach you to do that lest your pocket book be emptied by Mr Market.

As you can see in the chart above the S&P has had a closing high but has not yet broken the top of what you might call the box it has been in for a while now between 1520 and the 1599 zone on a futures basis. A break of here would open the way to a trendline which joins the late 90′s high with the 2007 high and which extrapolated sits at 1608 on a futures basis.

Turning to FX land and the past 24 hours have seen the Aussie reject the 1.0270/80 zone which is where the long term weekly trendline sits at the moment and rally strongly on the back of the better risk tolerance in the market. Even though we were slanted the other way with our discretionary positioning in the past few days it is encouraging for traders that the Aussie is trading up and down with risk sentiment because many traders will be more comfortable with this type of price action.

The 4 hour chart for the Aussie shows it is in a nice little up channel with the 1.0371 level the top of this channel at the momentand this might be resistance today. On the dailies our usual indicators suggest a further rise in the Aussie toward the 1.0395/1.0410 region.

Euro was also higher and we have to be honest and state that we completely underestimated the positive impact that the swearing in of the Italian government. This is particularly the case because we figured given the structure of the coalition that it was unlikely to look kindly on the policies implemented by Mario Monti’s government and demanded by the Germans. Indeed new Italian Prime Minister Enrico Letta said last night that,

Italy is dying from austerity alone. Growth policies cannot wait.

Markets didn’t care and Euro rose as the chart above shows but it remains within the 1.30-32 box.

Yesterday USDJPY fell heavily to retest pretty close to our slow moving average before bouncing back – the outlook is still biased lower however and 97.00/20 remain the key supports.

On commodity markets Nymex Crude rose 1.53% to $94.42 Bbl, Gold rose 1.51% to $1475 and Silver bounced back strongly with a 3.19% rally. Copper was up 0.99% and in the Ags the unseasonally wet weather drove Corn up 6.06% which dragged Wheat up 2.79% and Soybeans up 2.88%.

Data

In Australia we get private sector credit and then HSBC Manufacturing PMI update for China, vehicle and housing data in Japan and then this afternoon german retail sales  and French Consumer spending before German unemployment and European CPI. Tonight in the US its Case Shiller house price index, Chicago PMI.

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Vantage FX | USDJPY has a tradeable top in place, Aussie under pressure | 29 April 2013

April 29, 2013 By Leave a Comment

We’ll do a quick around the grounds this morning of what happened on Friday night and over the weekend but we want to concentrate on USDJPY this morning because there is a chance that the game might have changed a little for the short term after the BoJ decision and press conference on Friday as well as signs the Abe Governments focus might be changing to a bit more nationalism now that the policies are in place they wanted.

The big news Friday however was both the weaker than expected US Q1 GDP and the lack of reaction in markets in the US to the miss. At the close of play the Dow was up 0.08% but the Nasdaq and the S&P 500 both fell 0.33% and 0.2% respectively which given the magnitude of the miss, 2.5% outcome versus 3.0% expected, is really a testament to the impact of the free money culture that the Fed has created.

In Europe markets were also down with the FTSE off 0.26%, the DAX down 0.23% and the CAC fell 0.79%. In Milan and Madrid stocks fell 0.51% and 0.81% respectively.

The USD dollar came under a bit of pressure as a result losing a little ground against the Euro at 1.3037, and the Pound which is at 1.5495 not to mention the Yen which sits at 97.93 and which we will get onto in a minute. The Aussie Dollar was however unable to capitalise on the USD’s weakness at 1.0280 this morning and no doubt likely to suffer under the weight of lowered growth expectation and the revelation that the Australian Government’s budgetary hole continues to grow with a $12 billion shortfall in the Governments Panglossian hopes.

Aarrrggghh we’ll have more to say on this in a separate note late on today.

Also out overnight was the news that the new Italian Government lead by Enrico Letta of the Centre Left party which has cobbled together a coalition with Silvio Berlusconi’s party it what is reminiscent of the Italian Governments of old – what’s the half life we give this one? Not sure, but for the moments markets are not concerned.

Turning to this morning’s key focus there is a growing chance that an interim top in the USDJPY rate is in place but if not there is a clear stop level on shorts on which to trade against in the 100 zone. We’re  intrigued by the USDJPY price action and its inability to have broken 100 for so long and the sell off that has occurred on Friday night  to push it back below 98 where it sits this morning.

The key for me as you can see in the tweet above from Friday afternoon after the BOJ held its press conference and announced that it was expecting inflation of 1.9% by 2015 is that if this is as close to the 2% target as you can get then having engineered a 25% weakening in the Yen from below 80 to just below 100 then perhaps the overt work of jawboning and driving USDJPY, EURJPY and other Yen crosses is largely complete.

Perhaps certain names in Tokyo or other places knew this which might help explain the persistence of USDJPY’s inability to break this key level of 100 – perhaps not as well, but either way a USDJPY short looks a good risk reward trade based on the techincals.

The first chart above is the 4 hour chart and it is clear that the box USDJPY has been in for a while is still holding but equally with our fast and slow moving averages having crosed and turned bearish Friday the outlook has turned lower.

The daily chat is starting to look like it is topping but like the aborted sell off below 96 recently we’d argue that only a break of the slow moving average which comes in at 97.12 today and coincides with the 38.2% retracement of the recent rally is the key short term technical level and support.

Japan is clearly far from fixed but to the extent that the Abe Government and Kuroda BoJ have made an impact on USDJPY which has weakened 25% against the USD and by implication a little more against the CNY and the Won then you might say job done for a while. Equally as I noted above the inflation expectation is for the rate to be close to target in roughly the time frame set then perhaps the topside pressure on USDJPY has reduced for a while – time will tell.

Euro was a little higher on Friday night and continues to consolidate within the 1.30/32 range. We thought it might have broken down and headed lower by now but it hasn’t and consequently the Box is reinforced for the moment. We are still running a discretionary – not systemised – short position in Euro and will do for some time.

For the Aussie the outlook is starting to turn on both a fundamental and technical outlook – We will address the Aussie in a separate piece later but for now while below 1.0338/41 the bias is back toward the recent lows at 1.0219 and then perhaps lower. Looking at the chart above though some might make the case that if the recent lows hold and the Aussie breaks up through the trendline then it is off to the races again for a run at 1.04 and above. So that 1.0338/41 level is worth watching.

On commodity markets Gold spiked into our sell zone hitting a high of 1482 on Friday night before dropping back to close down 0.53% at $1453 oz. A break of $1450 could open a move lower today. On the Silver market prices were under pressure falling 1.58% to $23.95 after an early rally also but Dr Copper managed to rally more than 2%. Crude was also down a little falling 0.68% to $92.78 Bbl.

Data

Japan is out today for “Showa Day” which an increasingly belligerent Shinzo Abe is calling something national return of sovereignty day. Nothing in Australia but a raft of European consumer confidence and business climate data before personal consumption and spending data in the US along with the release of Dallas Fed manufacturing data and pending home sales.

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Vantage FX | GBP rallies against Euro and USD, Aussie and Commodities higher | 26 April 2013

April 26, 2013 By Leave a Comment

Sterling was the big mover overnight with the release of the better than expected Q1 GDP which printed +0.3% from -0.3% last and against 0.1% expected.  It is an encouraging sign that the UK economy may not be as weak as many including us here at Global FX had thought was the case but the reality is that the UK economy and its budget deficit still face some big chllenges as the year on year GDP is only up 0.6%.

But as we always note often it is not the data that makes the markets move but rather where the data prints relative to what the market thought was going to print. So Sterling fairly roared from 1.5262 to a high of 1.5480 and its sits at 1.5430 this morning.

The chart above shows that GBP has continued to respect the uptrend since the low in March and the Fibonacci extension now that GBP has taken out the high from this month is for a move to 1.5627 which seems a long way from the 1.42 we had been expecting that GBP would head toward back in March when it broke down through 1.52.

Key to the GBP’s move and the Euro’s selloff from a high of 1.3093 overnight against the USD is the move in EURGBP. We don’t often talk about this cross although we watch it every day. What you see in the chart above is an excellent set up for a crash in the EURGBP rate if it can close below the .8404 low of last night. Target is .8265 and then .8082 if that level gives way.

Which gives us a nice segue to look at the Euro itself. We have a small lifestyle short in Euro at the moment believing it is headed toward 1.2750 perhaps 1.2650. The data out of Europe last night fairly screamed ECB rate cut with Spanish and french unemployment hitting new records of 3.25 million and 6.2 million people respectively. The French don’t report a percentage figure but the Spanish unemployment rate of 27% is truly appaling and stands testament to the ludicrous notion that you can austerity yourself to growth and helps explain why there has been so much academic aggression toward Professors Reinhart and Rogoff’s poor excel skills which caused them and by implication the IMF and Europe to draw incorrect conclusions about the relationship between debt and growth.

But whatever path Europe chooses for its future lower rates and at some point more bond buying across the zone seem part of its future. Which paints a picture of a weaker Euro even if the data in the US has been a bit more disappointing recently.

The chart above of the EURUSD gives a clear picture of a currency that is rolling over but a break of the low of this week and the 200 day moving average that comes in at 1.2946 today is required to confirm this outlook.

The Aussie has recovered nicely of the lows of earlier this week and from the post CPI lows on Wednesday where it dipped into the 1.0220′s. Over the course of ANZAC day the Aussie rallied to a high of 1.0339 in tune with USD weakness and Euro’s aborted strength. It sits at the moment at 1.0289 mid range for the past two days. The high yesterday is actually the third touch on a tentative trendline on the 4 hour charts. This line comes in at 1.0325 at the moment. On the downside last nights low at 1.0268 and the 1.0260/70 zone which has been an important level both up and down is seen as an important level for the Aussie to hold.

In other overnight news the better than expected print of jobless claims in the US which fell to 339,000 against expectations of a fall to 351,000 from last weeks 355,000. This bigger than expected drop seems to have put a little more confidence back into the US recovery story from what we’ve seen and read this morning. Never mind the weaker than expected Kansas City Fed index – nope just ignore that.

The Dow rose 25 points or 0.17%, the Nasdaq was up 0.62% and the S&P rose 6 points or 0.39% to 1585 which is a great reaction away from the key 1520 level we identified last week and the S&P continue to keep keeping on.

In Europe the FTSE had every right to rally but didn’t really get on with it only rising 0.17%. In Germany the DAX was up 0.95% but the CAC paid a little bit of attention to the weak employment numbers as did stocks in Spain with falls of 0.08% and 0.29% repectively. In Milan stocks were up a little more than half a percent.

Commodity market moves help explain why the Aussie rallied with Crude up 1.96%, Gold up 2.7%, Silver up a ludicrous 5.74% while Dr Copper rose 2.53%. These moves suggest both US dollar weakness and a different take on global growth but the volatility in the moves recently remains disquiting.

Data 

New Zealand Trade is out this morning and then Japanese CPI and a BoJ meeting results. Tonight we get the preliminary US GDP report.

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Vantage FX | Stocks recover from Twitcrash, Euro pressured | 24 April 2013

April 24, 2013 By

Cyber crime is becoming an increasing concern as we saw again overnight when the AP Twitter feed was hacked and said that the Whitehouse had been attacked. In the blink of an eye stocks fell and wiped of around $136 billion worth of market cap as you can see in the 15 minute chart below and the very long tail candle.

This type of thing poses an interesting question for traders because anyone with prudent risk management would have been stopped out of positions in that blink of an eye. No doubt those that were will not have been happy and will be a bit filthy this morning but stops are there for a reason and as disappointing as this move will have been in stocks and other markets the move reveals the structural weakness in the market – so if the Whitehouse had really have been bombed markets would have really tanked and the stops would have been effective.

So we just chalk it up to one of those things, implore AP and other market moving twitter feeds and Twitter itself to beef up security  and maybe have more complex passwords and move on – but as traders we know it is not a reason to lessen our commitment to risk management but rather the opposite.

But the other really interesting thing about the price action overnight in stocks when we relate it to the data is the structural necessity of free money and low interest rates that seems to be underpinning the market.

How else can we explain the moves in European stocks after the weak data we saw released yesterday and last night. The big miss on the Chinese manufacturing PMI printing 50.5 versus 51.4 expected was followed up by slightly better than expected PMI in France but then a fall to 47.9 from 49 in Germany before the fall in the US Markit PMI print of 52 versus 54 expected and 54.6 last. Indeed the rally was phenomenal when you take the weak data into account with the FTSE up 2%, the DAX up 2.41% the CAC up 3.58%, Milan up 2.93% wile in Madrid stocks rose 3.25%.

Entirely consistent with the data as you can see – NOT!

But therein lies the issue, the expectations that the ECB will now ease rates from their current levels around 1% is somehow seen as a positive. We’re not sure if Japan is a good case study for what is going on in Europe but after a decade or more of low rates the economy hasn’t really budged. But for now accomodative policy is all stock markets care about. Which makes it very fragile as we saw with the AP tweet last night.

In the US stocks recovered from the Twitcrash to finish higher across the board. The Dow was up 1.04%, the Nasdaq up 1.10% and the S&P was 1.06% higher. New home sales were lower than expected and the Richmond Fed manufacturing index fell to -6 from 3 last and against 7 which was market expectations. Once again proving that it is not the economy but free money that is driving the markets. After the close Apple has reported earnings which were slightly better than the sharply downgrade earnings forecasts but lower for the first time in a decade but it is raising its dividend and buying back stock. Cynical some might say – but not us!!!

Which helps explain why the Aussie Dollars fall after the Chinese data yesterday stopped short of a continuation down and through 1.02. The low was 1.0219 and at the time it looked like the sellers were gaining the upper hand but perversely the European and US data reinforces not the fact that the Aussie is a commodity currency assailed by falling commodity prices and lower growth but is a place where you can get 3%+ on your money and are paid ever day for being long relative to most if not all of the developed world.

As you can see in the 4 hour chart above the Aussie has been in a downtrend for a while now and remains below our slow moving average which comes in at 1.0266 which was support a few trading days ago. A break of this level would signal a sharper move higher toward 1.0290.

The Euro fell sharply to a low of 1.2971 overnight and it looks biased lower as we have been alluding to for a few days now. The weak data and lower rates that are clearly on the way are undermining the Euro in a way even though stocks are ignoring the economic reality.

From where we sit using our usual indicators and trading process it seems like Euro is set for a full retracement to 1.27 in the weeks ahead.

Elsewhere USDJPY is still waiting for the resistance at 100 to roll off and away and GBP is respecting the little uptrend line as you can see in the chart above- the 1.5170/20 region is very important support for GBP.

On commodity markets gold fell back a little to $1414 down 0.87% but silver was absolutely poll axed dropping 2.17% to $22.79 and the less lustrous precious metal looks like a shot duck technically now. Dr copper fell another 1.21% which should be taken as a warning against getting too bullish Aussie Dollars just yet and Corn fell 1.12%, Wheat dropped 0.75% and Soybeans rose 0.05%.

Data

CPI in Australia today will confirm or deny the increased chances of an RBA interest rate cut that the interest rate markets have started to price in over the past week or so. tonight in Germany we get the release of IFO and then Durable goods in the US.

It is a holiday in Australia tomorrow as we remember Anzac Day and the diggers sacrifice and contribution to our nation. We’ll also watch our beloved Collingwood crush Essendon but we’ll be back on Friday

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Vantage FX | Dollar Yen afraid of 100, Aussie pressured, earnings season going poorly | 23 April 2013

April 23, 2013 By

Stocks were up in most of Europe and in the US as well but there are growing signs that earnings season is going the wrong way and that the market is becoming vulnerable once again. After starting off fairly strongly earnings are starting to disappoint. This morning on MarketWatch I saw the following

So far, the first-quarter’s runway show has clashed with expectations.

Of the 103 Standard & Poor’s 500 companies that have reported, 50% beat earnings per share estimates, 43% beat on sales, and 24% excelled on both measures, according to analysts at Bank of America Merrill Lynch.

What does this say about the U.S. economy and stocks? Corporate America has seen better.

“This is lower than the proportion of positive surprises we observed last quarter, and below historical average levels,” the Bank of America researchers noted drily.

Indeed as you can see in the graphic from Goldman Sachs via Business Insider earnings results are badly missing the average of the last 40 quarters at the moment and fully a third of S&P 500 companies report this week. That being said it is therefore important to note that there is no point getting bearish before the announcements but it is worth keeping an eye on and certainly something to consider for the future as the big reversal in the economic surprise indices for the G10, US, Europe and China are all signalling that the global slowdown being signaled by Dr Copper. Indeed even though the focus over the past week or so has been on the shenanigans in the Gold market it is worth noting that LME Copper has dropped around $11oo or about 13% per tonne this year and the slide has accelerated over the past month.

So while we aren’t saying necessarily that the S&P or any other equity market is about to crash or even just sell off because this is a strange world goosed by free money where fundamentals don’t seem to matter – until they do. but we are watching the 1520 level we have identified in the S&P 500 as a key indicator that a deeper retracement has begun.

At the close of play the Dow was up 0.13% even though Existing home sales were disappointing falling 0.6%, the Nasdaq rose 0.87% and the S&P 500 was up 0.50%. Key to the above discussion was the report by Caterpillar which characterised as the

largest maker of mining equipment, posted disappointing first-quarter earnings, cut its 2013 forecast and lowered “significantly” its outlook for demand from commodities producers.

So the fact that its shares actually rallied seems incongrous – but that is equally important as the free money makes all news good news – at least for the moment.

In Europe stocks were higher except in London where the FTSE fell marginally by 0.09%. The CAC was flat, the DAX rose 0.24%. Spanish and Italian stocks roared higher up 1.42% and 1.66% respectively after the re-election of the Italian President and his speech to Parliament where he blasted  the politicians for not being able to form Government and asked for a grand coalition to be formed fairly briskly. Why this caused stocks to rally so hard is difficult for your humble analyst to fathom but hey – that’s equities for you.

Now, to Global FX Land

The battle for 100 is really very interesting in USDJPY at the moment with the US dollar unable once again to breach this level. We have been saying for some time now that someone or something is sitting there and the price action is once again suggestive of that. In yesterday’s summary of the CFTC Commitment of Traders positioning report we mentioned that the Yen shorts around 78,000 are still in the top quartile of shorts for the past 12 months with the high around 94,400 so it could just be the case that the market is well short of Yen and doesn’t have a lot of room left to sell. Certainly it looks that way for the moment.

As you can see in the 4 hour chart above the box we have placed the USDJPY – indeed the box the price action it has placed itself in – was reinforced overnight with a high of 99.88. USDJPY will eventually break 100 most likely when whatever is at 100 rolls off and from there it will probably run a few big figures but part of the preconditions for the punch through 100 is likely to be the bneed for the market to get a little short Dollars there not the structural long that is in evidence – so it could be a little more trade the range type play yet.

The Aussie dollar is very interesting as well. Yesterday the NAB put out a piece saying that the collapse in gold over the past week would normally kncok another 3.5 cents of the “fair value” of AUDUSD but that,

 the correlation has broken down in the past two years and we are not rushing to downgrade our AUD/USD forecasts

We find this really interesting because certainly correlations come and go but it is dangerous to discount an input which has such a long and storied history of impact on the Aussie. We know the NAB strategy team very well and believe the Co- Head of FX Strategy Ray Attrill to be in the top few Currency Strategists globally so we’ll give them the benefit of the doubt on this call. But certainly the worm is turning for the Aussie and the global economy as noted in the Economic Surprise indices and the copper price we’ve mentioned above. Equally both Reuters and the FT this morning are running what might be called anti commodity currency articles which are worth noting also.

The price action in the Aussie was intriguing yesterday it pushed up above 1.03 for a while but as soon as Europe entered the fray the selling for the Aussie and the Euro started to come under selling pressure. We had targetted a test of 1.0250 yesterday morning so we sold but took our profit a little early as the low was eventually 1.0233 overnight. The Aussie is starting the day right in the middle of last nights range and the outlook from where we sit is for a move back under 1.02 to test support at 1.0180 now although on the day we might see a rally to sell into first.

The Euro remains in its range and traded 1.3014 to 1.3093 overnight and sits around the low 60′s this morning. It either has to break 1.32 or 1.30 to build any decent momentum. GBP is very interesting as well respecting a little uptrend line since the low back in March. The key level to watch is 1.5188 over the next few days – a breach would be ugly but it has to break first.

On commodity markets as noted above Copper was lower falling 0.62% although crude and gold were both higher rising 0.85% and 1.84% respectively. Yesterday afternoon we updated our thoughts on Gold which you can find here. Silver was up 1.59% and on the Ags Corn, Wheat and Soybeans all fell 0.84%, 0.95% and 0.72% respectively.

Data

It is going to be a huge 24 hoursy – Watch our twitter feed for the data as it flows because with so many PMI’s out markets are going to get a really good and uptodate read on the economy of the globe.

We kick of with the HSBC Chinese Manufacturing PMI in Asia today before heading to Europe this afternoon/tonight where we see French, German and Eurozone manufacturing PMI’s. Similarly in the US its manufacturing PMI plus housing sales and Richmond fed

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Vantage FX | Will USD/JPY break 100, can Aussie fall below 1.02 – Yes! | 22 April 2013

April 22, 2013 By

The end to the week was dominated by improving stock market sentiment and a re-ignition of USDJPY’s attack on 100 after Japanese Finaince Minister Taro Aso said that the other nations of the G20 accepted that the policies being pursued by the Abe Government and the BoJ were aimed at combating Japanese deflation and trying to arrest that and not about weakening the Yen.

If anyone believes that then I have a bridge to sell them because what the Chinese and Koreans think of the Yen policy is sure to be unprintable. But to the extent that this puts to bed the concerns raised the previous Friday after the US Treasury said it was monitoring Japanese policies with regard the Yen it left traders free to recommence the aggressive Yen selling and reverse the ‘haven” buying of Yen we’d seen earlier in the week when gold went a bit haywire. Aso’s comments were echoed by BoJ Governor Kuroda who said the G20 gave him confidence to continue easing

So we saw USDJPY hit the 99.60/70 region once again Friday. It hasn’t broken the key 100 psychological level yet but as Jesse Livermore wrote almost 100 years ago now if it does take it out it will likely run for a few big figures – the Fibonacci projection would be a move to 102.75 if the box breaks

The Aussie had an interesting night and a very interesting week when you think about it. Any notion that it is a safe haven should have been put to bed by last week’s trade. The Aussie was under pressure from the very same forces that pressured markets globally and you can see has hard a sharp reversal on the weekly charts from the false break the previous week.  Indeed on this weekly chart the Aussie looks biased back toward 1.0110/30.

On the daily charts it is a similarly poor outlook and news today from Deloitte Access economics that the Australian Government is going to announce a multi-billion dollar budget deficit on Budget night in a few short weeks could be a catalyst for a rethink about the “miracle” that is the Australian economy. When pressed on ABC NewsRadio this morning Access head Chris Richardson said that he expected the deficit to come in somewhere around the middle of the the Governments last update at $1.1 billion deficit and some economists expecting a $20 billion – so around $10+ billion which is a big take down on what the Government estimated just a year ago and according to Access is largely due to a faltering corporate sector and company profits.

So all is not rosy for the Australian economy as some would have us believe particularly if you pay a little bit of attention to the Citibank Chinese Economic Surprise Index which stood at -16.5 last week from +74 in late February and it is the first negative number since October 2012. Out later this week is the Q1 CPI which we’d guess is going to be no impediment to an RBA easing.

Which suggests that the Aussie will remain under pressure and head first to 1.0250, then 1.0180 and we’ll see how it looks there. We’ll be selling at some point today.

The Euro also looks weak, completely unable to hang onto any gains over the past week which seems really very strange given everything that went on last week – but lets face it Europe remains the basket case of the Big G economies and indeed contains 3 of the G7 economies all of which are weak and weakening. The daily chart above looks like Euro is trapped in a 1.30/1.32 range with a break either side needed to get things moving – we favour a downside break.

Turning to stocks and it was a better day Friday on both sides of the Atlantic with Europe largely posting gains except for Germany where the DAX fell 0.18%. In the UK the FTSE rose 0.69% while in France the CAC was 1.46% higher. Milanese and Madridian stocks rose 1.81% and 1.32% respectively.

In the US the Dow finished up 0.07% but the S&P and Nasdaq both fared better rising 0.87% and 1.25% respectively and closing on their highs for the day. We have read countless articles about Friday’s trade and it seems to consistently be characterised as a relief rally. But relief from what? That gold stopped falling? We are not sure because just like the Chinese economic surprise index continues to weaken so too does the G10, European and US economic surprise indices. So it is hard to charcaterise the big economies of the world as rosy or improving but perhaps in this perverse world that is the point – weak data equals more accomodative policy and more goosing of stocks. We’ll continue to watch the 1520 level on the S&P and see if/when it breaches how things look.

On Commodity markets gold continued its recovery and was up more that $100 from the lows of last week at one stage to $1424 before pulling back to close the week at $1403 oz. We will have a new Gold outlook out later today where we consider where to next for gold – keep an eye out at www.globalfx.com.au or our twitter feed.

Data

Not much data in Asia or Europe today and tonight we get Existing home sales in the US so all up pretty boring.

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Vantage FX | Watch the close for S&P tonight and 1.0250 for the AUD | 19 April 2013

April 19, 2013 By

Stocks in the US fell again overnight and the S&P is looking pretty wobbly from where we sit – certainly it hasn’t take out that 1520 level we have identified as key for us but tonight looms as the most important weekly close in a very long while after the week we have had in gold and economics. We’ll get to that later but overnight the data in the US once again suggested a second quarter slowdown from the pace and expectation of growth that was apparent just a few short weeks ago.

Initial jobless claims were up only 4,000 to 352,000 but the market took it badly as it did with the weaker than expected Philly Fed survey which fell to 1.3 from 2.0 previously. the punditry had expected a rise to 3 rather than the fall but scarily in terms of the employment picture the sub-index of employment fell sharply from 2.7 to -6.8. Like teh NAB survey here in AUstralia these business survey’s are powerful reads on the economy and we put heavy weight on the sub components. So these data are a worrying sign for the US recovery and by inference the Stock market and risk assets like the Aussie dollar.

Notice I am calling the Aussie a risk asset. I am doing this on purpose because the notion that Australia and the Aussie are a safe haven got airplay again yesterday in an appaling article that ZeroHedge picked up which was a clear advert for someone flogging the ability to invest in Australia. the article claimed that Australia was the new Switzerland where as the reality is that Australia is just the least ugly currency at the moment it is not a safe haven it is a safe harbour at best but more likely given the least ugly analogy it is the Kate Upton of FX land – the latest cover for sports illustrated but only until the next and newer one comes along.

Just like we saw in gold there is a chance at some point, whether it is much lower rates or weaker economic performance or more troubles with miners that at some point many of these recent buyers of the Aussie reverse course. And don’t forget if the Aussie really was a safe haven then it would have gone up this week – not down, Q.E.D!

Anyway to the markets.

The Dow fell 82 points or 0.56% to 14537, teh Nasdaq dropped 1.21% and the S&P 500 fell 10 points to 1542. As you can see in the chart above the 1520 level we identified is actually below the fairly obvious neckline some are calling it. We are saying 1520 because we want to see it trade below the lows of the last 6 or 7 weeks and make a clear break of this line. Having said that though a close below this line on the week tonight will definitively turn the outlook back toward a move under 1500 and then we’ll see.

In Europe the German parliamentary approval of the Cypriot bailout was intially positive but in the end the weaker US data hit stocks and they closed off their highs. FTSE was flat, the DAX fell 0.39% and the CAC was roughly flat as well. Milanese stocks rose 0.63% and Spanish stocks were up 0.13%.

On currency markets the Euro is up at 1.3050 but it looks a bit dodgy on the charts from where we sit – it simply looks like it is going to rollover in the next few days and head back down toward the lows of last week. A breach of the 1.3000/20 zone will signal that this move is under way.

The Aussie likewise had an aborted rally – we went long yesterday afternoon at 1.0315 with a target of 1.0339 but the best it got was 38 bid so we missed our chance and got out in the high 20′s. Which was a good move because the Aussie fell to a low of 1.0266 – not exactly the price action of a safe haven is it. Yesterday we said that we thought it was headed to 1.0250 and it is worth reiterating that this is really a daily note with daily targets and how we trade intraday is different as you can see in the above example. But the key here is that it still looks biased lower and a break of 1.0250 opens the way toward 1.0180.

On commodity markets Crude rallied 1.21%, gold was up 0.71%, Silver was down a little and looks sick at $23.50 oz. Copper regained 0.52% overnight and in the Ags Corn crashed 2.42%, Wheat rose 0.11% and Soybeans were up 0.54%.

Data 

The G20 meeting is the highlight for the next few days and we look forward to the communique they will release. We are sure that the conversations between the Japanese and American representatives might be very interesting at the moment.

Filed Under: April, Market Wrap Tagged With: , , , , , , ,

Vantage FX | Risk off, Aussie and Copper down as stocks worry about growth | 18 April 2013

April 18, 2013 By

Another volatile night as the adage that volatility begets volatility is proved right once again. Apple shares closed at a 15 month low on the back of earnings from one of its component makers. The drop of more than 5% was matched by other tech firms with the sector under pressure. Bank of America was also down after its earnings and Dr Copper fell 3.58% as concerns about the state of the global economy made the rounds of the market and got traders thinking that maybe free money is only good for stocks and isn’t actually the panacea for a global economy still carrying debt up to the eyeballs.

Indeed Reuters reported this morning that Copper was sharply lower after European car sales fell 10.3% in March suggesting that things really are bad for the continent and that the “second half rebound” was going to struggle to be delivered.

This is the way the economy and markets have gone for the past few years and I think it is worth having a look at a piece written my one of my Colleagues from MacroBusiness which posits why we are in this cycle of hope and disappoint with regard to the economy and in particular the US economy. You can find it here.

Our view here at GlobalFX has been and remains that the world is awash with debt and that final demand will remain subdued for some time and as such all the central bank liquidity infusion will do is goose stocks higher while your average Joe and Josephine just go about their daily lives and try to make ends meet. So it is instructive when you look at earnings reports and you see that profit targets are hit but that revenues are down. Managers are becoming good at cost control but demand is still not what it once was.

Which leads to the point of all of the above – stocks and risk assets are at a fragile juncture. Every hiccup for the last few months, indeed last 6 probably, has meet with dip buying – we saw it again yesterday – but if the economy doesn’t deliver then….mmm

Anyway at the close the Dow fell 138 points or 0.9%, the Nasdaq dropped 1.8% and the S&P 500 fell 22 points or 1.4%. In Europe it was even uglier with the FTSE off a fairly mild 0.96% but shares on the Continent fared much worse. The DAX dropped 2.34%, the CAC 2.35% and Spanish stocks dropped 1.83%. In Milan it was a more subdued fall of 0.96%.

The chart above is the weekly chart of the S&P 500 and based on my reading of the chart using my usual indicators and system if the S&P drops down through 1520 then we will be able to call a top for this run. It’s that time of year for the April/May hiccup and clearly the market is getting nervous at the moment with Gold’s fall spooking many in other markets who also though they were or are bullet proof.  So watch 1520.

On FX markets the Aussie came under renewed selling pressure completely reversing the recovery of the previous day and then some. The high of 1.0394 gave way to a run to 1.0339 late afternoon before a recovery to 74/75 before the Aussie then dropped a cent to the low of 1.0274 before recovering to 1.0297 at the moment. As you can see in the chart above of the daily Aussie price action it has been fractious trade in the Aussie dollar and the daily charts are suggesting a test of at least 1.0250 and if that breaks then back under 1.02.

The Euro was also hit hard reversing the rally of the night before trading through a 1.3200- 1.3000 range and it now sits at 1.3032. A breach of last nights low opens up a move to the 200 day moving average at 1.2918.

USDJPY was higher again which suggests that the overall currency/commodity move was as much about the US dollar as it was about concerns over growth. Indeed the crash in gold has perhaps reinforced the US dollars place as the only credible safe haven in a world of volatility and Europe’s economic malaise and Japan’s own debasement of its currency means there is no alternative. The Aussie dollars fall should also put the ludicrous notion that it is a safe haven to bed once and for all as well.

Turning to commodities it is worth noting that Crude tanked even though the EIA stats showed a sharp fall in crude inventories. WTI was down 2.30% and it is back below the 200 week moving average at $87.49 for the first time since mid last year. It looks like crude is going to head toward $81.30 /50 and we’ll see how it looks there. Gold couldn’t hold onto its gains and sits at $1370 oz and silver was under pressure falling 1.36% to $23.10. Corn dropped 0.45% while wheat and soybeans rose 0.21% and 0.60% respectively.

Data

NAB Business is out today but otherwise it is fairly quiet until Jobless claims and the Philly Fed manufacturing survey tonight in the US.

Filed Under: April, Market Wrap Tagged With: , , , , , , ,

Vantage FX | Aussie rallies, Gold looking for bottom and Euro surges | 17 April 2013

April 17, 2013 By

There was a huge squeeze in Gold and Silver over the past 24 hours but that’s all that was as they fell back after hitting fairly obvious targets for the selling to re-emerge.  Stocks in the US however did much better on the back of better than expected data in the US but in Europe the weak data continued. Strangely though Euro has roared higher taking the Aussie with it.

Looking first at the dataflow the ZEW economic sentiment survey in Germany had a huge miss falling from 48.5 to 36.3 and way way below the 42 expected. The current situation part of the survey also fell heavily from 13.6 to 9.2 while the Eurowide sentiment survey also tanked from 33.4 to 24.9. In the US it was a different story however with the Housing Starts release showing a bigger than expected jump of 7% in March against 1.4% expected. Industrial production was also higher up 0.4% against expectations of a 0.2% increase and capacity utilisation up a smidge as well.

So the US got its lead over Europe’s economic growth outlook confirmed and reports by Goldies, Coke, Johnson and Johnson and Blackrock – all big names – showed that profits were stronger than expected. After the bell yahoo has reported better profits also but Intel disappointed.

In other important economic news the IMF has cut its forecasts for a large swathe of countries with its release overnight. Global growth is expected to be 3.3% now not 3.5% and we’d suggest this will come down further as 2013 proceeds. Europe is expected to contract but Japan got an uplift in expectations. The chart below highlights the expectations graphically.

All in all though with gold off its lows the preconditions were there for a US stock rally and at the close the Dow finished up 158 points or 1.08%, the Nasdaq rose 1.51% and the S&P rose 23 points or 1.46% to 1575. In Europe as noted it was a different economic and market story with the FTSE down 0.61%, the DAX fell 0.38%, the CAC dropped 0.66% while in Madrid and Milan fell 0.81% and 0.61% respectively.

Turning to gold it made a new low for the run at $1320 yesterday morning early Asian time and eventually overnight rallied to a high around $1400 before falling back to $1368 oz as I write this morning. Silver managed to rally all the way to $24 before dropping back to $23.39 as we write this morning. Both of these moves were fairly obvious levels to attack and then find selling as we noted on Twitter yesterday afternoon in a conversation with an old colleague.

But the more interesting question is where to now? Is the gold low a sustainable one? Are the moves in stocks sustainable?

The reality is that the situation remains fluid and it is important to not that instability and big moves like we have seen in gold beget increased volatility for a time. The $1320 low is just $8 from the very important $1312 we identified in Yesterday’s Gold outlook - for the moment near enough is good enough as the level is less than 1% off the key support and we continue to respect this level unless or until it breaks. It is now for the price action to tell us where to next . For the moment though as you can see in the chart above Gold should hold above yesterday’s lows.

Euro is the interesting one though – it has no right fundamentally to be rallying yet it is and it has. I saw a prominent analyst raging against non-fundamental moves in FX yesterday particularly the Aussie characterising the moves as a short squeeze implying these moves were wrong. Let me say clearly technicals are fundamental if you are trading. You may not believe in them and you may like to anchor in fundamentals but if you do not watch technicals and market positioning as part of your process – even if just because you know others are watching them – then you should donate half your account to charity and put the other back in the bank. You’ll still be 50% better off than if you trade and ignore technicals.

So the Aussie rally was equally easy to call yesterday afternoon if you are using you tech’s as you can see in our tweet from that time. The Aussie high this morning has been 1.0389 and the Aussie Yen high was 101.39 so far. This is not to say we are gurus or anything like that because that could lead to Hubris but its just an indication that whatever your view you need to include price action not just fundamentals in your trading toolkit.

This is an important point to make because in yesterday’s note we said that “Looking at the price action in the Aussie now and it looks more likely than not that the Aussie is going to test the 1.0250/60.” yet a few hours later we had changed our mind and went long at 1.03353.

This was based on our view of the one and 4 hour charts and as you can see in the chart above the Aussie is now approaching our FMA which comes in at 1.0403 at the moment so we’d expect this to be resistance but a break would open the way for a run to 1.0440. We’ll see the lower level would have to break first.

On other markets USDJPY continued its rally off our SMA and the previous box and sits at 97.65 this morning. Some further rallies might be expected today. Crude was higher and Corn, Wheat and Soybeans rose 2.63%, 1.33% and 1.04% respectively.

Data

CPI in New Zealand and the Westpac Leading Index in Australia before a fairly quiet data night and then the Beige book early doors tomorrow morning.

Filed Under: April, Market Wrap Tagged With: , , , , , , ,

Vantage FX | Gold and USDJPY Tank, Aussie trades below 1.05 | 15 April 2013

April 15, 2013 By

Gold is the big story over the weekend as it absolutely tanked falling to close at $1482 oz down more than 4% or $63. We have been bearish the yellow metal for some time and the failure to hit let alone break through the $1619 when the Cyprus mess was in the headlines spoke to us, as we wrote at the time, of underlying weakness in Gold. Our view since late last year was always a technical one and we have no fundamental idea why Gold was selling so heavily on Friday night and the interesting thing about most of the commentary we have read is it is about the drop not the cause of the drop. Which is instructive in itself – we will share our views on gold a little later this morning but for the moment it remains under pressure.

More interesting than gold however was the move in USDJPY which was looking very wobbly Friday. I had a discussion with a mate of mine on Twitter about USDJPY and noted that all the crosses looked a little dodgy Friday morning as you can see in the tweet from the afternoon. I got short USDJPY on Friday on this basis and it closed the week at 98.34 down about 150 points from the high in the morning.

What we saw in USDJPY was that we had a convergence of a market which is still very short as we point out in the return of our CoT positioning report and news that the US Treasury has told the Japanese that they have their eye on them and their policy with regards the Yen. We are paraphrasing here but the treasury reiterated that the Japanese had signed off on the last G& communique, where you will remember that they all agreed as long as [policy was aimed domestically the external and currency impact was simply what it was, and reminded the Japanese that their monetary policy must be aimed at getting the Japanese economy going not just at weakening the Yen.

So the Japanese card has been marked and 100 is now a huge level – we have probably seen an interim top for now.

When we look at our technicals we have to say USDJPY looks like it is going to head back to test the top of the box it broke out of which roughly also corresponds with the 38.2% retracement level of the move from the bottom of the box to the recent high. Thus our target is 96.30/65 when we will get a better view of where USDJPY is going.

Now remember that this is a simply ordinary run of the mill retracement which we see in markets over and over again and the pullback in Yen crosses is likely to be replicated across the board.

Elsewhere on Friday night the weaker than expected retail sales in the US, which fell 0.4% raw and -0.1% ex autos and gas, hurt economic sentiment in the US and was aided in undermining perceptions about the recovery by the sharp and unexpected fall in the Michigan Consumer sentiment number which printed 72.3 against 78.5 expected and 78.6 last. The US recovery was never going to be linear but this recent run of data has been a bit weaker than many expected and the downside surprises has helped the Yen and even buoyed the Euro and the GBP.

Speaking of the Euro it continues to try to climb off the mat and had a marginally positive day after a bit of a wild ride. No doubt the EURJPY flows will be mucking around with EURUSD moves at present and the EURJPY selling might put a dampener on any EURUSD rally for the moment. Euro needs to break up and through last weeks highs at 1.3135/40 if it is to kick on – if it can’t it can’t. GBP is an interesting one as it has been climbing off the floor since March but spec positions are at a 6 month high in terms of bets against the pound – this is most curious and speaks of underlying distrust in a fundamental sense for the GBP rally. From our point of view GBPUSD should and will eventually trade down to the 1.42ish level but for now the short term risks might be skewed the other way.

The Aussie traded underneath 1.05 as we thought it might on Friday. We squared our long from earlier in the week and went short  AUDUSD in the 40′s taking profit at 94 on Friday night. Aussie has held up well but it does look like lower levels might be beckoning. Watch the 1.0480/85 region from where it bounced last week as a key indicator of direction.

The 4 hour charts suggest a move back into the 1.0450/60 region with 66 the 50% fibo of the bounce from 1.0343 in early April – below that it is 1.0436.

On commodity markets as discussed Gold fell heavily but Silver also tanked pushing below the low from May last year and opening a potential move to $22.47 oz. Crude tanked as well dropping 2.37% to $90.66 Bbl and Dr copper also fell more than 2%. You might characterise it as a USD move but the Euro persistence and Yen strength suggest this is a view on global growth.

But nothing seems to worry the stock markets which continue to be goosed higher by Central Bank liquidity with the Dow ending flat, the Nasdaq finishing down 0.16% and the S&P 500 falling 0.27% to 1589. It did manage to hold above the uptrend line however into week’s end. Europe was a slightly different story however with the FTSE down 0.5%, the DAX falling 1.61%, the CAC 1.24% and Milan and Madrid down 1.50% and 1.46% respectively.

Data

Earnings season continues so this will be important and I note I read an article on Market Watch which said the analysts have been more bullish than the strategists  during this market run and thus more successful. It seems the ground up rather than top down stuff is working a little better at the moment so earnings may continue to be okay and support the market’s levitation.

Kuroda is talking again today and then we have Home Sales in Australia before Chinese GDP data – this is a huge number and almost important as non-farm payrolls. The market is looking for 8% YoY and 1.9% QoQ but we are guesstimating on stronger numbers even with the net export number last week.

Tonight is quiet in Europe and then in the US the highlights are TIC flows, NAHB index and Empire State Manufacturing

Filed Under: April, Market Wrap Tagged With: , , , , , ,
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