Vantage FX | Fiscal Cliff deal down to the wire, stocks and Aussie Dollar pressured | 31st December 2012

December 31, 2012 By

Friday night’s big falls in the S&P 500 and the Dow is possibly the best thing that has happened in the past few weeks to push the ever self indulgent politico class toward some sort of deal over the fiscal cliff.

But as we’ve written often lately we should never underestimate the ability of the political class to push things to and through the limit in a game of brinkmanship as they remain fascinated with their own importance and forget about the real impact of their decisions. So as we have just 1 day to go in US time before the cliff the Senate and the House are feverishly still trying to hammer out a deal that can pass by the deadline or at least patch something together that can pass.

But having waited till now to sort things out and with John Boehner’s authority as the leader of the Republicans in the House less strong than it has been we remain wary that even though the President has the better hand and even though he is positioning the Republican’s nicely as the villains in this drama there is no guarantee that a deal will be done in the time allotted.

So today and tonight’s pre-holiday trade could be volatile in either direction as trade goes with the flow of news headlines.

The latest one from CNBC is that there has been a “major setback” in talks.

So all we have is price to lead us and on that front the sharp fall in the S&P 500 on Friday and the related move in the futures we track has left the index right on the support we noted last week.

s&p 500 index, spx index quote - (snc) spx, s&p 500 index index price

I noted on Friday that my indicators were pointing lower and one of my trend following systems is now short (on a futures basis) at 1395 with a stop at 1428.35. Small position with 1% equity at risk – dangerous at a time like this but if you have a process and you get signals then you have to take those signals. If a deal is done there is a risk of a 1% loss but if a deal is not done – well we’ll see.

Stocks

Anyway on the physical market at the close the Dow was off 1.21% or 158 points to 12938 while the S&P 500 closed at the previous day’s low of 1402 for a loss of 15.67 points or 1.10%. The Nasdaq was 0.86% lower.

In Europe Frankfurt closed the year (it’s a holiday today) with a fall of 0.57% at 7612 but over the year but having closed 2011 at 5894 the DAX is up more than 29% in 2012 which is a phenomenal performance given the economic and political headwinds that it has faced. As you can see in the chart below from VantageFX (yes you can trade the DAX and other Indices) it  looks like an interim top might be in place.

dax, frankfurt stock exchange, dax quote, dax chart

 

In other European markets the FTSE closed Friday down 0.49% while the CAC was off 1.48%. Milanese stocks fell 0.82% while in Spain stocks fell 1.81%.

Looking back to Asia on Friday it was a more positive day with gains in most markets so look for these to be unwound sharply if a deal is not done today.

Global FX

bad news for the equity markets even though it is sourced in the US and firmly of the making of US lawmakers is still good news for the US dollar and so it was again on Friday night. This combination stopped the Aussie’s rally against the US in its tracks as you can see in the chart below shoing the 4 hour chart of the Aussie versus the S&P 500.

aud, audusd, australian dollar, australian dollar price quote, audusd versus spx

 

The key downside level is 1.0342 in the short term and a move below here would open the way lower. After two days of looking for an Aussie Dollar rally it is clear it will only eventuate in the short term if a deal to avert the cliff is done and stocks rally. Against the crosses the Aussie did better largely across the board except for GBP and this may continue if the weakness continues in stocks.

eur, eurusd, euro, euro (eur) price quote

The Euro is still dancing on the spot and only a break of 1.3150 would open the way lower or a push up and through 1.3315 giving more topside momentum. This range is defined in the turquoise box on the chart above.

Dollar Yen hit, breached but closed below the trendline we have been targeting for a while now on Friday and unless or until we see a close above that level then it should remain resistance. There is a chance that an interim top is in for USDJPY but overall the trend to a substantially weaker Yen over coming quarters is in train – just like new PM Abe wanted.

Commodities

The 200 day moving average was once again solid resistance for the Nymex Crude contract and $91.71 is a key level in the short term as a result. Crude closed at $90.62 Bbl. On the precious stuff Silver was off 0.87% to $30.04 oz. while Gold dropped 0.47% to $1653 and is resting on trendline again. $1635 remains the level that would see me call a trend chain.

Catch me on Twitter @gregorymckenna or @FX_Global

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

Vantage FX | Stocks and Aussie recover from Fiscal Cliff fears | 28th December 2012

December 28, 2012 By

It is all about the Fiscal Cliff again overnight with stocks and risk assets generally under pressure and the US dollar catching a bid after Democrat Senate Leader Harry Reid said he thought the US was headed over the cliff. The S&P fell to a low of 1402 before a slight recovery after Republican Senator Scott Brown posted on Facebook and Twitter that he was jumping on a plane to review a plan from the President.  News that the House will sit on Sunday December 30 at 6.30 pm from Bloomberg gave the recovery more fuel.

There really isn’t much to say about the outlook here given that it is so tied up with the whims of US politicians and their ability, or not, to reach a deal on the cliff. Can they? Will they? Who knows? A deal will get done eventually but it might take the Cliff and market’s reaction to get the deal done as it did back in 2008 when the Senate didn’t pass Hank Paulson’s first rescue bill. One big issue that we have no way to judge the impact of on negotiations is the apparent slip in Republican House Leader Boehner’s grip on power and the leadership after last week’s vote debacle. Can he really speak for his colleagues in negotiations or is he just an empty vessel now?

It makes it much harder to know what the outcome might be but suggests that if the President wants to land a killer blow then he can do it but the cliff might come first.

Anyway we may not be able to judge the actions of the people involved and only guess at the outcome but we do know there are some significant levels to watch  in the S&P 500 which is still driving sentiment and outcomes in other markets.

s&p 500 index, spx index quote - (snc) spx, s&p 500 index index price

 

The blue box on the chart above contains two trendlines and the 200 day moving average at 1390, 1387 and 1385 respectively. Should the S&P fall down through here then the outlook darkens and a move back to recent lows at 1337 comes into the frame.

Now we always say respect levels until they break and aggressive traders can use this zone for longs with a stop and reverse should they wish to trade that way (usual caveats apply folks and please see disclaimer) but my indicators at the moment are pointing lower.

jpy, usdjpy, yen, dollar yen, dollar yen quote

Elsewhere many eyes have turned to Japan and the new Government taking office. The Yen was under pressure again yesterday as it closes in on the old trendline we highlighted yesterday. Given it is above the 200 week moving average for the first time since 2007 it is clear that the trend in the Yen is turning but on the dailies it is looking extremely overcooked at the moment so we’ll see what kind of resistance this 86.45/50 region provides.

aud, audusd, australian dollar, australian dollar price quote, audusd versus spx

For the Australian dollar its last 24 hours have been heavily influenced by the moves in the S&P 500 as you can in the hourly chart above of the relative price moves since December 7th. The low of 1.0343 overnight was almost exactly at the point of the equity low and the move back to 1.0376 where the Aussie sits now has been on the back of the recovery of the S&P from more than 1% lower to just 0.23% lower with 33 minutes to go in US trade.

aud, audusd, australian dollar, australian dollar price quote, audusd

 

As you can see in the AUDUSD chart above this turned the last day’s candle from a negative to a positive and the bias based on the 4 hour charts is for a further recovery toward the 1.0420 region we highlighted yesterday.

Stocks

As noted above the US is recovering from the lows and with 29 minutes to go the S&P 500 is off just 0.2% at 1417, the Dow is down 0.21% at 13,087 and the Nasdaq off 0.17%. Earlier in Europe and before the harry Reid comments the FTSE was unchanged, the DAX up 0.26%, the CAC rose 0.59% and Italian stocks were 0.45% higher.

In Asia yesterday it was another positive day for Japanese stocks as the Yen weakened with the Nikkei rising 0.91%. The Hang Seng was 0.35% higher but in Shanghai stocks fell 0.59%. In Australia the All Ords rose 0.34%.

Commodities

Crude is approaching its 200 day moving average at $91.79 and closed trade at $91.00 overnight. Gold was uo 0.17% to $1662 while silver was 0.67% higher at $29.98.

Catch me on Twitter @gregorymckenna or @FX_Global

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

Vantage FX | Yen up Nikkei down, Aussie finds support | 27th December 2012

December 27, 2012 By

Central banks have taken the lead in this crisis over the past 5 years driving interest rates to zero in many jurisdictions and providing their balance sheets in order to perform quantitative easing. All of this has been aimed at lowering the return on saving and driving money into the stock market and other areas of the economy  in the hope that where the stock market goes so goes the overall economy.

While the US, European and Japanese economies continue to struggle with high unemployment rates and generally low rates of aggregate demand their stock markets have certainly benefited from the unconventional monetary policy.

The election of Shinzo Abe in Japan and his overt attack on the Bank of Japan’s independance is a game changer for Japanese markets and the Yen and potentially a negative game changer for the globe. On his first day in office yesterday Abe upped the ante on the BoJ saying that  ¥90′s, against the US dollar, was very different for Japanese business than ¥80′s. The Wall Street Journal is reporting that he said,

as a minimum if the U.S. currency “is above ¥85, companies that haven’t been paying taxes until now” because they are making a loss would be able to pay taxes.

Mr. Abe also repeated calls for the central bank to set a firm 2% inflation target at its January policy-board meeting and threatened to take legislative action to force the bank’s hand.

Adding to the speculation that the Abe election is a game changer were the minutes from the recent BoJ meeting which showed a desire to explicitly target a weaker Yen.

jpy, usdjpy, yen, dollar yen, dollar yen quote

As you can see the USDYen is up sharply and holding above 85 this morning at 85.60. It is now above the 200 week moving average for the first time since December 2007 and approaching an old support resistance line that stretches back to 2009 and comes in at 86.61 at the moment.

NKY Chart - Nikkei 225 Index - Bloomberg

As a result of the combination of Abe, the BoJ and the USDJPY sell off the Nikkei was up almost 1.5% yesterday and the index, as you can see in the Bloomberg chart above, has now clearly broken a multi-year down trend and taken out the high for 2012 on very strong volume suggesting that fresh money is being put to work.

These moves are based on hope more than anything concrete but clearly the new Japanese Prime Minister has won a mandate to tries his policies and try he will – so markets are giving him the benefit of the doubt for the moment.

Elsewhere the big news was that even though house prices fell in October they are still up 4.3% year over year according to the Case Shiller house price index in the US but this news has been more than overshadowed by disappointing results for the holiday shopping season from US retailers and the enduring Fiscal Cliff Shenanigans.

Stocks

So with 23 minutes to go before the close the S&P 500 is off its lows for the day and is down 4.96 points or 0.35% to 1421.70. The Dow is only 0.09% while the Nasdaq is off 0.61%.

Global FX

The Aussie Dollar was under pressure and fell as expected over the Christmas period finding support just above the old downtrend line it broke up through a little while ago – it’s funny how these old lines work when in theory they have little relevance but it simply suggests that like me traders and strategists leave them on their charts.

aud, audusd, australian dollar, australian dollar price quote

You can see this pattern on the chart above. As it stands this morning the 4 hour and daily charts suggest a short term rally as long as the AUDUSD are above 1.0335/39 with a target of 1.0420 maybe 1.0447. On the downside we have support at this 1.0335/39, 61.8% retracement of the 1.0150-1.0584 at 1.0314 and below this the 200 day moving average at 1.0294. 1.0280 is a very big level as well representing the 6 week low.

The Euro  sits at 1.3219 this morning while GBP is at 1.6132 with a bias to fall further once 1.6090 gives way.

Commodities

Gold sits at $1660 oz largely unchanged while Silver is up 0.48% to $30.19 oz. Oil and copper were big movers however with nymex crude up 2.69% to $90.99 Bbl and Copper rose 1.50%. The Ags were smashed lower however with Corn down 1.56%, Wheat fell 2.52% and Soybeans fell 1.06%.

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

Vantage FX | Merry Cliffmas – no deal, Aussie and Stocks fall | 24th December 2012

December 24, 2012 By

Just before I kick off with the overnight report can on behalf of VantageFX can I wish our readers and their families all the best for Christmas – it is a wonderful time of year for family and friends to get together and reconnect. The job of course will be to keep those connections strong all through the next year. If possible we would wish this and good health as our Christmas gift to you.

Greg McKenna

Now to the report

The week ended poorly for stocks and the Aussie Dollar as the lack of a deal on the Fiscal Cliff and John Boehner’s self inflicted obvious defeat appeared to leave the negotiations no closer than they had been at any stage since they began. The push for the Republican vote and then the reality that Boehner can’t even carry his own caucus hit markets on Friday with US markets off something in the order of 1% and the US dollar and the Japanese yen gaining.

Over the weekend Boehner said there is still a chance of a deal but now that we know he has between 40 and 50 members he can’t carry then we retain hope of a deal but it looks like it will fracture his party and or his leadership and we wonder is he prepared to go that far – does he have that vision. We hope so.

Before we move to the close of the markets a couple of things worth noting in the data Friday night was the strength of Durable goods in the US which rose 0.7% in November which was much stronger than the 0.2% expected and the non-transportation component was up 1.6% against expectations of -0.2%. There was also good news on the personal income front which rose 0.6% in November. Elsewhere the UK’s Q3 GDP data came in around expectation at 0.9% but as the budget deficit worsens so too then is the Triple A rating at risk.

Stocks

Stocks in Europe were all lower with the FTSE down 0.31%, the DAX off 0.47% and the CAC off 0.40%. Spanish and Italian stock markets went in different directions with Milan off 0.40% and Madrid up 0.35%

At the close the S&P 500 was off 13.54 of 0.94% to 1430 which is a big down move but the recovery from the low around 1423 still leaves the market up on the week so its a relative sell off over the cliff and suggests that on balance the market still thinks that a resolution will be achieved. The Dow fell 0.91% and the Nasdaq was off 0.96%.

In Asia on Friday it was Fiscal cliff fear and disappointment about the BoJ that hit stocks with the Nikkei off 0.99%, the Hang Seng down 0.68%, the Kospi down 0.95% and Shanghai off 0.69%. The All Ords was down 0.25% but the SPI200 futures have recovered from the lows so like the US markets a weaker end to what was still a pretty positive week.

Global FX

The Australian dollar, suffering under the weight of a very long speculative community, cracked also and went down and to the key 1.0380/1.04 region we identified on Friday morning  and it closed the week below the uptrend line from the October low of 1.0150.

aud, audusd, australian dollar, australian dollar price quote

On the 4 hour chart the Aussies slide is looking a little over cooked and it may find some support in the 1.0380 region we had identified as our target. Equally suggestive of some AUD recovery is the fact that the AUD is oversold relative to the move (and recovery from the lows) of the S&P 500. The target for a bounce might be 1.0447 which is the 200 period moving average of the 4 hour chart. The previous uptrend comes in at 1.0348 today so if the Aussie slips further this would be first support.

We are not going to fight this emerging sell off because we know that the large levered community is or has been very long Aussie Dollars on the IMM and so there is plenty of selling pressure from this quarter and associated accounts if this fiscal cliff mess drags on and if the US dollar retains a bid tone.

Elsewhere in Global FX land the weakness in stocks saw USDJPY under pressure but as stocks came back so too did dollar yen. It is pretty clear that 83.77/81 is the support zone for USDJPY and a break is needed to open the way lower.

eur, eurusd, euro, euro (eur) price quote

Euro was also off its highs  and it too seems to have a fairly obvious support zone that would need to break or indeed trigger a deeper retracement. That level is 1.3139 as you can see in the chart above.

Commodities

Crude reversed off the recent target we had for it on Friday with a fall of 1.63% to $88.96 Bbl and you can see in the correlation with many other markets that this is a fear/USD move.

gold, gold price quote, XAUUSD

Consequently you won’t be surprised to see that Gold and Silver reversed recent weakness as well climbing 0.86% and 1.79% to $1654 oz. and $29.66 oz. Gold’s rally in particular dragged the Yellow metal back inside the big multi-year uptrend so it hasn’t broken yet on that basis as you can see in the chart above.

Data

Nothing until Thursday night – so enjoy.

We’ll be back Thursday after the Christmas and Boxing Day Holiday’s here in Australia.

Feliz Navidad

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

Vantage FX | Gold falls hard, Boehner ups the fiscal cliff pressure| 21st December 2012

December 21, 2012 By

Just when you think it is OK to focus on Christmas and forget about the fiscal cliff the need of the political class to poke each other in the eye and get their faces on TV knows no bounds. Overnight we learnt that US Republican leader John Boehner is planning to take his “Plan B” to the vote in the House of representatives this week but Democratic Senate leader Harry Reid said that it won’t get through the Senate.

Just so you can see the stupidity of this argument below is a graphic from MarketWatch which shows the difference between the Obama and Boehner plans.

Trivial difference between Boehner and Obama

It’s cream pies at 20 paces folks and it’s just posturing and is plain stupid. All the while the ranks of the American poor grow, markets are on tenterhooks and the chance of a repeat of the debacle of 2008 in markets after the Lehman collapse grow. But at least the Politicians get on the telly.

Right, enough of the rant for the day because there was a little bit of positivity in the markets which are up in the US as I write this morning with the 3rd read of Q3 GDP which took the annualised pace of growth up to 3.1% from the 2.8% expected. Of course hardly anyone expects this to be replicated this quarter thanks to the concerns over the Cliff but the fact that personal consumption which was also released overnight came in at +1.6% as expected gives some hope growth has not collapsed. The Philly Fed index was likewise positive printing at 8.1 from -10.7 last and against pundit expectations of a -3 print. Existing home sale were also up at 5.9% from 1.5% last. On a darker note however jobless claims increased 17,000 to 361,000.

Gold

Of bigger interest overnight given the discussions of the past week and my view that Gold was going to tank was the price action in precious metals. Gold fell $21.20 and is down 1.27% at $1645.30 oz. as I write but off the low of $1637.60 according to Reuters.

As we head into the weekly and then very soon the yearly close I am watching Gold very closely. Some of my systems are already short gold but a press below $1635 oz. would for me be the decisive break of the multi year uptrend line and a signal of a much deeper retracement to come. Even Gold bull Jim Rogers is cautious yesterday I saw him quoted as saying,

“Most things correct 30 percent every year or two, even in big bull markets – 30 percent corrections are normal and yet gold has only done that once in the past 12 years,” Rogers said. “Gold on any kind of historic market basis is overdue for a nice correction.”

gold, gold price quote

 

As you can see in the chart above gold has been trending lower for some time now and the lower of the two red lines stretches back to the start of the Gold bull run which commenced in 2008. If we get a weekly and or monthly close below $1635 then I’ll be looking for a run to $1434 in time.

Stocks

At the close Europe was largely unchanged with the FTSE, CAC and DAX all 0.05% either side of square.

In the US with 48 minutes to go the S&P is up 0.36% to 1440.98, the Dow is 0.19% higher and the Nasdaq is up 0.15%.

In Asia yesterday it was a case of buy the BoJ rumour sell the BoJ fact. The Bank of Japan said that it would expand its asset buying program by ¥10 Trillion to ¥101 Trillion but the Nikkei and other traders seemed disappointed that they did not point to a the 2% inflation target that Abe and his conservative colleagues are pushing for. No doubt the BoJ can count and knows what this might do to the country’s finances.

At the close the Nikkei was 1.19% lower, but this was largely japan specific profit taking after the big run recently. The Hang Seng was up 0.16%, the Kospi rose 0.32% on the day that they elected their first Female President and Shanghai was 0.28% higher. In Singapore the Straits Times rose 0.54% and in Australia the ASX All Ords was up 0.29%.

Global FX

Not big moves over the past 24 hours but some decent ranges with Euro trading a low of 1.3187 to a high of 1.3295 and is currently up 0.11% at 1.3241. Stirling is up 0.20% to 1.6279, Dollar Yen largely unchanged at 84.38 while USDCAD is down 0.12% at 0.9837. The AUDUSD spent the last 24 hours dancing on the spot and is roughly unchanged at 1.0481.

eur, eurusd, euro, euro (eur) price quote

The 4 hour charts for EUR suggest a double top around 1.33 and are signalling a potential fall back to last nights lows and if that gives way 1.3145/55.

aud, audusd, australian dollar, australian dollar price quote

The Australian Dollar made a low at 1.0459 over the past 24 hours which was in my 1.0450 region identified yesterday. The bounce has been encouraging for those looking for more positive price action. Should the 1.0450 region break then the big support comes in at the bottom of the uptrend channel that comes in at 1.0400 today.

Commodities

We have noted gold above and Silve also had a big fall, in fact much bigger then gold as it lost 3.91% to $29.83 oz. As we wrote recently we had a target for a fall to $30.60 which has been materially exceeded overnight and the charts look like it may want to test important trendline support at $29.45/55. We’ll keep an eye on it.

Oil tired to break up through yesterday’s high and our target level but has closed below it at $90.21 for a gain of 0.26%.  Copper was 1.93% lower while the Ags were also off sharply with Corn down 0.92%, Wheat off 1.77% and Soybeans 2.09% lower.

Datawise

BOJ Monthly economic survey in our time zone today and then French Business Climate tonight together with UK GDP and Public sector borrowing out. In the US the Chicago Fed index is out as is Durable goods and more personal income data.

Catch me on Twitter @gregorymckenna or @FX_Global

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

Vantage FX | Euro Surges, Oil hits target but the Cliff ways on US Stocks| 20th December 2012

December 20, 2012 By

German IFO came in stronger than forecast overnight helping the Euro to surge higher across the board rising to an 8 month high against the US dollar and a 16 month high against the Yen. European stocks also pushed higher with peripheral markets doing extremely well in nominal terms and relative to the core.

German IFO report

As you can see in the chart above both Business Expectations and Business climate have recovered from recent lows which is giving hope in Europe that it’s biggest economy is recovering from the dip this year and as such the economic outlook has brightened a little. Coming in at 1.0204 Germany’s IFO was up on the 1.02 expected and and last months 1.014. In the press release IFO said,

In manufacturing the business climate continued to brighten. Companies assessed their current business situation slightly less favourably than last month, but they are far more optimistic about the future than previously. Business expectations showed their sharpest increase since August 2009. Export expectations also continued to improve.

In the US the market has been unable to kick on with its recent strength and stocks have been down for most of the day as a bit of Fiscal Cliff pushing and shoving has occurred and the housing data overnight was a little weaker than expected. Housing starts came in at an annual rate of 861,000 units from 888,000 last month and 873,000 expected.

On the Cliff President Obama even noted that the two proposals were almost there and essentially put more pressure on the republicans to move but that is the key – US Lawmakers are almost there and Obama said he is willing to compromise and not trying to “rub their face” in it. But it was the Republican comments from John Boehner that the President would be responsible for “all Amercians” taxes going up which were responsible for the Equity market funk post Obama’s comments.

Looking back to Asia yesterday it would be remiss if we didn’t note the fact that the Nikkei climbed back above 10,000 for the first time since April as the BoJ deliberates on the stance of monetary policy and the Yen weakens giving some hope that Japanese corporations may become more profitable.

We are seeing a very interesting end to the year with some very big moves in stocks and currencies after the recent relatively quiet trade. Whether or not these emergent trends continue in 2013 only time can tell but it is very interesting to note and some big moves coould be afoot.

Stocks

Europe got Obama’s positives comments were as the US traded off Boehner’s rejoinder which explains the divergent outcomes. At the close the FTSE was up 0.43% with the CAC up a similar amount at 0.44%. Germa stocks were a little less ebullient and the DAX closed up just 0.19%.

In the US with 57 minutes to go before the close the S&P 500 is down almost 7 points or 0.47% to 1440. The Dow is off 0.41% while the NASDAQ is down 0.16%.

Global FX

As noted above the Euro surged on the back of the German IFO but also some residual optimism after the Standard and poors upgrade of Greece we mentioned yesterday morning. Now, economically the mess in Europe is far from over – with unemployment, particularly Youth unemployment as high as it is both in general and in the specific instances of Greece and Spain there are quite a few years yet for this mess to run. But for whatever reason, it could be as simple as crisis fatigue, traders and investors are moving on and the Euro crisis is, for the moment, not the number one thing on their minds.

Indeed the performance of peripheral bond markets since the mid-year funk has been signalling this shift in sentiment and the Euro has recently been benefitting from it as well.

eur, eurusd, euro, euro (eur) price quote

Last night the Euro rallied up to a high of 1.3308 overnight and while it has pulled back to 1.3205 as I write it has still had a pretty good run over the past week or so. But the candlestick you can see in the chart above is a warning that perhaps some pullback is in the offing within the uptrend that is still targetting the mid 1.30′s as I have been saying recently.  $hour charts target a move to 1.3170/1.3184.

aud, audusd, australian dollar, australian dollar price quote

The Australian dollar is down 0.40% on the past 24 hours and is looking for support probably around the 1.0450 region on the day and then we will see where it goes from there.

Commodities 

Crude oil has  satisfied the target I had been looking for recently with a move to $89.42 Bbl up 1.80% on the night and high at exactly the point I had expected as you can see in the chart below. A break of this level at $90.21 would open the way for another rally of $2 to $92.24 Bbl.

crude, crude oil, nymex crude, oil, crude oil price quote

Gold was down slightly overnight   at $1668 oz. but Silver was off 1.76% to $31.04 oz. I have had a target of $30.60 for a while so we’ll see how it goes there.

Datawise 

New Zealand GDP will be big this morning particularly given what has been occurring for the NZD in the past day or so. China’s leading index will also be important in our time zone today. But the BoJ decision will be the highlight for the next 24 hours. In the US personal income and spending data and of course anything to do with the cliff will be watched.

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

Vantage FX | Fiscal Cliff hope abounds, stocks surge but Gold and Aussie dollar fall | 19th December 2012

December 19, 2012 By

Fiscal cliff optimism was the key driver once again as there were more signs that the two sides of American politics are getting closer to a deal on the Fiscal Cliff overnight pushed stocks sharply higher and took the safe haven bid out of the US and, strangely, the Australian dollar. Gold also was hit hard and is very close to breaking a multi year trendline.

What seems to have buoyed markets is the movement by Barrack Obama from the $250,000 lower limit up to $400,000 for tax hikes. Equally however in a meeting with his fellow Republicans House Leader John Boehner has reasserted his authority to deal with the White House. Reuters reported,

Despite concerns of a revolt by Republicans in the House, Boehner emerged from a meeting with his members unscathed and pledged to press forward on negotiations with the White House. Boehner’s concession last week to consider higher tax rates on the wealthiest Americans – an idea long fought by his party – signaled that a deal was possible ahead of a year-end deadline.

Republican Representative Darrell Issa, a key committee chairman, said House Republicans “were supportive of the speaker. … I saw no one there get up and say, ‘I can’t support the speaker.’” Boehner is the top Republican in Congress.

For all the head winds faced by the US economy at the moment this is unequivocally good news as lawmakers march toward a deal and markets are reacting in a quite rational manner in rallying.  Given all the negativity that was available this year whether it was Greece, Spain, Italy or the Cliff as the fog lifts toward thin year end trade there is every chance now that markets surge into the year end close.

s&p 500 index, spx index quote - (snc) spx, s&p 500 index index price

 

As you can see in the S&P 500 chart above the weekly technicals suggest that a move back to this year’s highs at 1480 is now possible. This is also possible given the recent stability of price as the S&P has been dancing on the spot for a long time now building momentum for a break – which appears to be higher.

There was no significant data released overnight except for UK inflation which was unchanged on the month from last month’s 0.6% rise. Year on year inflation rates sits at 3%.

Stocks

At the close Europe was strong on the back of the US Fiscal lead with the FTSE up 0.4%, the DAX up 0.64% and the CAC rose 0.29%. Milanese stocks were up 0.94% while in Madrid they rose 1.60%. Worth noting is that Greece was upgraded from selective default by S&P overnight.

In the US with 23 minutes before the close the NASDAQ is leading the charge higher up 1.31%, the Dow is up 0.68% and the S&P 500 is up 0.88% to 1444.

In Asia yesterday the Nikkei was stronger again as money flowed into the stock markets in the wake of the Abe election rising 0.96%. Shanghai and Hong Kong were fairly quite rising 0.08% and falling 0.8% respectively. In Australia the All Ords was up 0.49% and the SPI is higher again in overnight trade but not yet taken out the recent high as you can see in the chart below.

asx, spi 200, spi 200 quote, spi, spi quote, asx 200 price quote

 

Global FX

The Australian dollar fell overnight even as the US dollar fell and risk markets rallied. This is very different to what you would usually expect to see from the Australian dollar which is rightly still viewed as a global risk proxy but it could be we are seeing a rotation in risk. By that I would highlight that last night gold tanked and copper was lower by 0.49%.

I have characterized the Aussie dollar as a safe harbour in a storm as opposed to a safe haven so although some might argue the AUD fall with the US dollar could suggest it really is now a safe haven equally it could simply be that my hypothesis that if the sun comes out money will flow out of Australia is equally true.

Also we know the market is very long the AUD, or at least the futures traders we use as proxies are with an all time high net long position, so that is also a big headwind.

aud, audusd, australian dollar, australian dollar price quote

 

As you can see in the chart above the Aussie is still in an overall uptrend from the 1.0150 low of a few months back but is stalling its momentum. Support is the old trendline that it broke up through at 1.0515.

But the Euro was the big winner overnight decisively breaking is through the range top and looking biased into the mid 1.30′s as we noted yesterday.

eur, eurusd, euro, euro (eur) price quote

 

The weekly chart above shows the scale of the potential rally. This set up is one of my favourites to trade and the target would be the 138.2% level which comes in at 1.3587 but with a stop at the 200 day moving average on the way – this level is 1.3518.

Elsewhere USDJPY is up 0.39% on the day at 84.19 and most of the “orphans” I highlighted yesterday have been covered with the last 24 hours trade pointing these Yen crosses higher. GBP is up 0.24% to 1.6247 and close to the recent high at 1.6306 which I would see as resistance.

Commodities

Gold is the big mover last night down 1.55% to $1670 oz. It is now resting on very important long term trendline support. My personal and long term view is that I believe Gold is likely to tank in the next 6 months losing many hundreds of dollars an ounce but it has to break the trendline first.

Elsewhere Crude was up another 0.99% to $88.09 and headed toward $90 Bbl as we highlighted yesterday.

Data

Westpac leading Index in Australia today and then Japanese trade data and coincident and leading indices. German IFO is the key in Europe tonight and then housing starts and building permits in the US.

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

Vantage FX | Fiscal Cliff gap shrinks, Yen opportunities abound | 18th December 2012

December 18, 2012 By

John Boehner has made a large and material concession on the Fiscal Cliff talks in the past 24 hours putting tax hikes on the table but only for those who earn over $1 million not the $250,000 lower income limit that president Obama was or is looking for.

This is a big move in the context of the recent presidential election, Tea Party style rhetoric and ideological abhorrence of tax hikes that the Republicans have displayed over the past year or so. I don’t think it is too much of a point to say that Boehner has crossed the Rubicon.

Now of course he might have simply moved to put the President under pressure to move but markets have taken this as a very positive sign and as I write this morning stocks are up sharply and the US dollar is also benefitting. This is genuinely good news and suggests that politicians have indeed learnt the lessons of 2008 and perhaps better understand that the electorate has little appetite for the dispute at the moment. Equally it is a victory (potentially) for the hard talking of Ben Bernanke and his statements that he has nothing if the Economy goes over “The Cliff”.

Elsewhere of course the big news was the election, should we say re-election, of the Japanese Prime Minister Shinzo Abe and his plans to goose inflation to 2%. Overnight there was talk that the BoJ is already preparing for a meeting to discuss how it can achieve this and also the request by Abe of his Ministers to work with him on this plan as soon as they are sworn in on December 26th.

Price action in the past 24 hours with respect to Japan and Japanese markets was pretty interesting and the number of “orphan” candles that have been created. Below is the Nikkei and then the USDJPY below that and what you see are big gaps higher but then the candles are “down” candles as the positivity was reversed.

Nikkei

 

Nikkei Above

USDJPY, Dollar Yen reversal, Dollar Yen top

 

The way I trade a candle like this that has satisfied my 138.2% price projection and then reversed is a warning that a bigger dip is coming. I would be out, that is my process, but this is a warning of a reversal so today and tonight’s price action is important to watch and either confirm or deny this potential eventuality.

Datawise yesterday and overnight of most interest was the big swing in TIC Flows into the US as foreigners sort other destinations for their capital. Flows fell from $4.3 billion in September to an outflow of $56.7 billion in October. Somewhat historic but interesting nonetheless.

Stocks

In Europe markets didn’t get the US bounce and closed mixed with the FTSE down 0.16%, the CAC fell 0.14% while in Germany the DAX was 0.11% higher. Italian and Spanish shares were higher by 0.61% and 0.20% respectively no doubt on the hopes surrounding the single European banking regulator and hopes this is more steps toward integration and as such lower and lower chances of a Grexit or Euro implosion.

In the US with 1 hour and 29 minutes till the close the S&P 500 is up 0.68% to 1423 (off the high for the night) while the Dow is up 0.39% and the NASDAQ is up 0.65%. Apple recovered a little on news that the iPhone is selling well in China but as I noted yesterday the set up is there for one of my favourite trades – the reverse of the USDJPY move recently.

In Asia as noted above the Nikkei was up strongly rising 0.94% but well off the highs. The rest of Asia was under pressure however with the exception of Shanghai which closed 0.45% higher. In Hong Kong the Hang Seng fell 0.41%, the Kospi was down 0.60%, the Straits Times was 0.31%. Closer to home the ASX All Ords was 0.15% lower.

Global FX

Dollar yen reversed some of its recent gains which is not unexpected and one of the reasons “buy the rumour, sell the fact” is such a market Axiom. USDJPY topped out at 84.48 and through the 138.2% projection from the break out of the range as you can see in the 4 hour chart below.

USDJPY, Dollar Yen falls

My process is to scale out as the 138.2% is hit and then get out quick on any further retracement. As it stands now the 4 hour charts suggest a further retracement back toward 83.53 at a minimum to “fill the gap” and a move below 83.20 would open a deeper retracement. If USDJPY takes out the high of yesterday then it is likely to run a little further.

My suggestion – have a look at the orphans on the other JPY crosses for some trading opportunities that fit your process (usual caveat applies)

Elsewhere the Euro tried to break higher through the recent range top from August 2012 but so far has failed to hold above here. The question here is going to be how the combination of Europe and the Cliff combine to drive the EURUSD in coming weeks. Both have positives aspects to them but it seems that a fiscal cliff resolution will help equities which might weaken the US dollars safety bid.

Euro, EURUSD, Euro dollar

 

Looking at the 4 hour charts Euro hasn’t pulled back too far from last nights high of 1.3191 and amove above here opens further topside toward the mid 1.30′s. However short term while below last night’s high a move back toward 1.31 seems likely.

For the Aussie it was under a little pressure after early strength making a high of 1.0568 and is down a little on the day at 1.0542. But as you can see in the chart below it is dancing on the spot at the moment with no firm direction.

AUDUSD, Australian Dollar

 

Commodities

Crude rallied 0.92% to $87.53 Bbl overnight and is starting to look constructive for a run toward $90 on the charts. Gold and Silver are unchanged for a change while the Ags continued their shenanigans with Corn down 0.96%, Wheat off 0.77% and Soybeans up 0.25%

Catch me on Twitter @gregorymckenna or @FX_Global

 

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

Vantage FX | Abe wins in Japan, USDJPY to 100 in 2013 | 17th December 2012

December 17, 2012 By

Friday night’s trade was once again dominated by moves in Global FX markets and a continuation of weaker equity prices in the US – it doesn’t feel like it is going to be a quiet close to the year.

Normally with only one full week left in the year volumes get thin, thoughts turn to the holidays and family and we get lower volume, tighter ranges in markets. But that is unlikely to be the case this year with ranges and volatility having been at multi-year lows recently and given some important things that could kick off new trends as we end 2012 and enter 2013.

Indeed we just might have seen some important moves in this direction already.

Over the weekend in Japan the LDP has had a decisive victory in the Japanese election and has been returned to power with a huge mandate to weaken the Yen and pump up inflation and the economy. Whether or not there is a sell the fact rally in the Yen today or even this week it seems that a multi-quarter sell off in the Yen has begun.

Equally BoJ stats already show a material uptick in foreign purchases of Japanese equities recently and this is likely to accelerate this week and next. We could debate the merits of buying moribund equities for many moribund companies in a moribund economy but where the money flows so goes the market.

On a negative note watch out for the rhetoric around the China/Japan island dispute to ratchet up.

As noted above in the US the talks on the Fiscal cliff remain top of mind and seem to be getting nowhere. As we get closer to the end of the month beliefs that the Political class couldn’t be so silly as to head over the cliff is getting tested.  Reports last week were that House Republican speaker told colleagues not to make holiday plans – so it seems that things might go down to the wire – or indeed over the cliff.

MMMMMM – just remember that after Lehman Politicians let the first bill fail. They have form!

Data wise Friday the HSBC Flash PMI at 50.9 from 50.5 last was a positive for the Shanghai market. Manufacturing PMI’s in Europe were also an improvement with the Markit Manufacturing PMI rising .01 from 46.2 to 46.3 in December but the Composite index was up a much stronger 0.8 points to 47.3 on the back of the big pickup in Services PMI from 46.7 to 47.8 although as you can see all three remain below 50.

Stocks

European shares were stronger early as the more positive tone emanating from Asia and particularly Shanghai but that strength faded and at the close of play the FTSE was 0.13% lower, the CAC was flat but the Dax did manage to hold onto some of its early gains and closed up 0.18%.

In the US  the price action in Apple and the weekly close on the S&P 500 were pretty ugly last week and having called the low a month ago my sense is that Tuesday last week might be the high for a while. Apple has now traced out one of my favourite set ups for a trade and a push down through $500 will be decisive and open the way for a move toward $430.

At the Close the Dow was down 0.27%, the S&P 500 of 0.38% to 1414 (still dancing on the spot but poor price action after the weeks early move higher) and the NASDAQ was off 0.71% led lower by the weakness in Apple and other tech stocks.

ASX 200 pointed lower, SPI Futures

In Asia the move in Shanghai was massive at up 4.32% and while this move was a largely Shangahi centric it did help Hong Kong rise 0.71%, the Straits Times in Singapore was up 0.38%. But the All Ords and Nikkei were basically flat. As you can see above the SPI looks like it is rolling over.

Global FX

The US dollar was weaker across the board on Friday night with the exception of the Yen and it is the same this morning with the USDJPY having benefitted though from the Abe victory.

Euro rallies, EURUSD, EURO, EUR

In the context of trades and trading though readers know my view on the USDJPY and that it is in a long term run toward 99 with stops along the way at important points. Equally for the Euro I have been saying that I need to see a break of 1.3170 to turn the outlook for the single currency.

As you can see in the chart above the Euro closed just below the top of that range and a break will open the way to the 200 day moving average at 1.3515 and the 1.382% projection which comes in at 1.3613.

Aussie Dollar rally, Australian Dollar, AUDUSD,

 

The Aussie didn’t stick with stocks on Friday night continuing to strengthen with USD weakness while stocks swooned. It has been a volatile few days as you can see in the chart above and while the bias for a higher AUD remains I am wary of the outlook if stocks are turning lower – I will investigate it further in the AUD Cross post later this morning.

For the moment though 1.0505/15 remains good support as we saw at the end of the week and resistance is at 1.0586 last week’s high.

Commmodities

Weaker dollar usually equals stronger Crude prices and so it was on Friday with a rise in Nymex crude of 0.98%, gold and silver were fairly quiet by their standards closing at $1694 and $32.29 oz respectively. Copper rose 0.56% and the Ags were on a bit of a tear with Corn up 0.91%, Wheat 1.01% higher and Soybeans up 1.32%. OJ was up another 1.2%.

Catch me on Twitter @gregorymckenna or @FX_Global

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

Vantage FX | Walking along the cliff, Aussie reverses with stocks | 14th December 2012

December 14, 2012 By

Ben Bernanke would have looked at the US PPI data last night and been convinced he is doing the right thing. During November producer prices fell 0.8% from -0.2% last and -0.5% expected with the year on year rate now sitting at just 1.5%. Of course the Fed Chairman is expressly targeting unemployment now and will keep rates low until the rate falls to 6.5% but for mine the real target of his unconventional monetary policy is deflation.

Bernanke is a depression scholar and knows what has occurred in Japan for the past 20 years and he knows that weak aggregate demand equals weak pricing power which ultimately can or does lead to deflation.

Perhaps the markets know this too because the QE4 strength continued to fade overnight with US markets in the red from early trade following on from European stock markets which were weak from the get go as they caught up to the US reversal the previous day.

Now that the Fed is out of the way and now that we are approaching the second half of the month it is inevitable that markets in the US and by extension elsewhere must focus on the fiscal cliff discussions – or it seems lack thereof. Overnight John Boehner, the Republican House Speaker didn’t muck around when he said that the White House was willing to walk right up to the Cliff.

In a note yesterday to clients focussed on the same theme I had yesterday in the AUD Cross post yesterday that it is equities that will drive the Aussie dollar the Commonwealth Bank FX team made a compelling case for why stocks might actually fall into years end.

There is a risk that US equity markets underperform over the final weeks of 2012.  Several factors may contribute to this possible weakness:

(a) Our analysis has found that 98 of the stocks in the S&P 500 are set to pay dividends (special or regular) between 19 and 31 December.  The final batch of these stocks will begin to trade ex?dividend from 17 December.  In total, the 98 stocks equate to 15% of the S&P 500 market capitalisation.  The highest number and largest cumulative dividend payouts will occur on 21 and 28 December.

(b) US equity investors may look to lock in profits before year?end to benefit from the lower capital gains tax rates currently in place.  In the year to date, the S&P 500 has risen by 13.6%.  This type of year?end investor behaviour by investors is nothing new.  Between 2000 and 2011, US equity markets tended to fall in the final week of December if the equity market performed strongly in the year.

(c) Since 2008, average daily trading volumes in the S&P 500 over the second half of December have been around 35% below the average between January and November.  Reduced liquidity can exacerbate market moves.  If the pressure in the final week of December is for the equity markets to move lower, then lower volumes could generate a larger downward spike.

(d) The current positive market expectations about the fiscal cliff may turn negative.  At the time of writing there are 19 days for the US politicians to reach an agreement to avoid the full fiscal cliff.  Heightened concerns about a possible US recession if no agreement looks in reach could weigh on global asset markets.

This is important to remember because while it would seem ludicrous to think that US politicians will let themselves go over the cliff don’t forget that the market funk back in 2008 after Lehman Brothers collapsed wasn’t really the collapse itself but the inability of lawmakers to pass Hank Paulson’s rescue bill the first time.

So there is a precedent and a huge one.

Stocks

So as discussed above European stocks were under pressure from the get go and at the close the FTSE was off 0.27%, the DAX fell 0.43% but the CAC was off only 0.10%.  Madrid and Milan did however have another better night closing up 0.43% and 0.64%.

In the US with 2 hours to go the S&P 500 is down 0.67%, the Dow is off 0.47% and the NASDAQ has dropped 0.74%

In Asia yesterday the Nikkei was on a tear as the competitiveness dividend of a materially weaker and weakening Yen helps stocks much higher with the index closing up 1.68%. The Kospi was also sharply higher after the BoK decision rising 1.38% while here in Australia the All Ords was essentially flat rising just 1 point at the close. Shanghai continued its erratic and volatile trade falling more than 1% but Hong Kong was less down beat falling just 0.26%.

Global FX

Yesterday in the Morning Call I said that I thought the call of a run to 1.06 was valid but in the AUD Cross post where I focus directly on the AUDUSD, EURAUD, AUDJPY and the AUDNZD each day I made the point strongly that the AUD top was in and that if equities had turned lower then so to had the AUD.

So it was in the last 24 hours with the AUD following the futures and actual trade of the S&P 500.

audusd

 

As you can see in the chart above at 5.14 this morning as equities sold off so the AUD broke back under the trendline it broke up through – and which stretches back to the high in 2011 – and is now back at support around 1.0507. Below here it is 1.0489 and then if that gives way it is a reversal of the rally back to 1.0450.

The EUR too is constrained by an important trendline as you can see in the chart below. If stocks are going to go off or at least focus on the Cliff then it is to the US dollar that eyes will turn.

euro

 

A break of 1.3037 would open the way lower and a break up through 1.3107 would turn the outlook more positive.

Commodities

silver

I like silver back in the $30 region and last nights move where it dropped more than 4% reinforces that reality to me (well its not really a reality until it comes to pass, but you know what I mean). Gold was off as well falling 1.3% back below $1700 trading at $1694 as I write at 6am EDT.  Copper was also off 1.38% and crude fell 0.48%.

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