Vantage FX | Stocks surge, gold back below $1600| 28th February 2013

February 28, 2013 By

The fact that Italy got its bond auction away and Fed Chairman Bernanke, for the second day in a row ,reiterated the commitment of himself and the Fed to drawing out the stimulus policy until the economy is on a self sustainable footing was a boon to stocks which have rallied hard in northern hemisphere trade overnight.

But while stocks rose from where we sit it was a very interesting night which speaks volumes of why the US dollar is probably going to continue to trend higher against the Euro and why Europe really is a basket case who’s currency is worth 10-20% less than its current value.

Data in the United States was a recovery booster with Durable goods ex-transport rose 1.9% which was much stronger than than the market expectation of 0.2% and builds on the solid 1% increase in December 2012. This is the best result since late 2011 and another indicator that the US economy is healing but also a warning to the politicians that this sequester and the cuts that are coming from the end of this week risks derailing the economy as it just really starts to be showing signs of significance.

Also out in the US was Pending home sales which increased 9.5% year on year in January which is reportedly close to a three year high.

In Italy Comedian turned politician Beppe Grillo made it clear he is in no mood to negotiate to form an Italian Government on his blog where MarketWatch says he called the putative PM Pier Luigi Bersani a “dead man talking” and a “political stalker”. But he did tell the BBC that he expected Bersani and Berlusconi to cobble together an agreement to form a Government to which Grillo’s 5 star party would then play the role of opposition. This didn’t hurt Italy’s ability to issue bonds however as they managed to get €6.5 billion away even if they were isued at a substantial increase over the previous auction. Italy paid 4.83% for 10 year bonds and 3.59% for 5 year bonds.

But to put that Italian rate in context remember that in Australia our 5 year bond rate at the moment is 2.88% according to Bloomberg so Italy is hardly being hurt by the extra yield.

Elsewhere in Europe in yet another sign that the political class has completely disconnected itself from the population of Europe European Commision President Jose Manuel Barroso said that EU leaders should not give into populism and should stay the path of austerity so that Europe can be put,

back on the path to sustainable growth.

We won’t rant about the fact that you can’t austerity your way to growth. We won’t rant about how undemocratic it is to tell the population of Europe that they will not be listened to and we won’t rant about how this blinkered view is inevitably going to lead to more not less instability if the Italian vote and recent southern European protests are any guide. Britain has lost its AAA, France has lost its one too and is slowly slipping further into the mire and German growth has not recovered as hoped with the Chinese soft landing but has rather been dragged down by the troubles surrounding it.

All of which is a short form of a longer piece which would argue that the US dollar should rally, and rally hard, against the Euro over the months ahead.

As you can see in the chart above the Euro looks like it is making a round trip to the levels from which this rally started around 1.2650 last November. It has conclusively broken, retested and rejected the uptrend over the past week or so and while a small short term rally from here looks likely it would still be consistent with the overall bearish outlook the longer term view is for a move back down to the 200 day moving average at 1.2875 in the first instance.

Turning to other FX rates the Aussie was under pressure again yesterday and then in early European trade. Having traded down to 1.0199 on Tuesday night the Aussie rallied back into the 1.0220/30′s before sliding around 6.30/7.00 pm Sydney which is about the time that markets really kick off in the UK. The selling was relentless and pushed the Aussie down to 1.02 where it found support initially and then until lunch time London when the US wandered in and support was found around 1.0180. from here it rose steadily back to 1.0200/10 before launching itself to 1.0245 in the past hour.

That’s not a bad ride for the Aussie and Aussie traders and the strength this morning seems related to the strong rally in stocks and most probably spotties coming for the morning and deciding on a little stop run. Why not – it’s what I would do in their position.

The interesting thing is that the old trendline that I have left on the chart was the top of this run. Looking at my 1 hour trading approach it looks like the Aussie might have some ability to push through on the day and maybe head toward 1.0260ish.

On other FX markets the Yen has sold off at the same time as the Aussie’s rally this morning and is back above 92 having spent a lot of the past day below this level. It has been ebbing and flowing around this support zone since it broke the other morning and how it closes the week is crucial to the near term outlook. The question for traders is whether USDJPY is still a buy the dip or a sell the rally. We favour the latter at the moment.

Turning to stocks ebullient is a word that doesn’t even come close to explaining what happened on European and US bourses last night. At 7.21 Sydney time with 39 minutes to go in US trade the Dow is up 190 points or 1.37% and back above 14000. The Nasdaq is up 1.51% and the S&P 500 has risen a massive 22 points or 1.47% to 1519.

In Europe Madrid was up 1.96%, Milan up 1.77%, Parisian equities rose 1.91% while stocks in Frankfurt and London rose 1.04% and 0.89% respectively.

This two day move really is a big reversal off last week’s lows and fears of an imminent withdrawal of stimulus. So Bernanke has done his job – interestingly though it would be reasonable to expect that if the Fed Chairman is confirming that he will goose stocks indefinitely we might have thought that gold would extend its rally. But what we saw overnight was a close back below $1600 oz with a fall of 1.44% to $1591. Silver was also lower dropping 1.3% to $28.88 oz.

Our usual indicators do however suggest that the gold rally may not be over and it would need to slip back down and through the bottom of the down trend channel – ideally at week’s end – to turn the outlook bearish again.

Crude was up 0.21%, copper fell 0.46% and the Ags were mixed with corn up 0.64%, wheat fell 0.39% and soybeans rose 0.55%. Cotton was on a tear up 3.32%.

Data

Some interesting data out of South Korea today on Industrial production and sentiment so we will be watching that along with HIA new home sales, Private Capital Expenditure and Private Credit in Australia along with RBNZ Business confidence in New Zealand. Tonight German and Spanish unemployment rates will be interesting before the next read of US GDP, Chicago PMI and Kansas Fed manufacturing index.

Catch me on Twitter @gregorymckenna

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

Vantage FX | Bernanke and uncertainty underpin the US dollar and gold| 27th February 2013

February 27, 2013 By

The uncertainty caused by the Italian elections continued to reverberate around markets overnight with European stocks under pressure and the US dollar and gold benefitting materially from the malaise.

The election result seems to have come as somewhat of a surprise to the established players and clearly also the markets. Stocks in Milan fell 4.9% dragging the rest of Europe with it and putting the whole Euro project in jeopardy. There is some hope that the previous antipathy between the established players may be put aside for some sort of “grand coalition” but the comedian turned politician Beppe Grillo who has driven a wedge through the establishment says he won’t be part of it.

We can all wring our hands and worry about what is going to happen but I thought a quote I saw on Reuters this morning summed up the outlook in the months ahead without too much hyperbole,

At the very least, a prolonged period of uncertainty faces the Italian economy, affecting investor sentiment. In coming months, fiscal slippage and obstacles to structural and labor market reforms would not at all be well received by global investors,” said Andrew Milligan, head of global strategy at Standard Life Investments

Uncertainty is never good for markets. Well that’s not exactly true is it. It is bad for some markets and good for others. Take last night’s price action as an example. The US dollar gained ground against all comers and gold rallied very sharply. Of course this is the normal thing in times like these when uncertainty rises materially but it serves as a lesson to traders that there is always a market somewhere that offers opportunities.

Indeed the USDJPY moves yesterday were both volatile but also predictable.

You can see in the hourly chart above the swift move once the 91.90 level gave way yesterday morning. USDJPY traded down below 91 before bouncing sharply. A sell stop on a break of 91.90 would have rewarded handsomely for the nimble trader and even though the recovery has been fairly good the outlook for USDJPY has turned for the moment.

Of course when you look at the USD’s strength against other currencies, gold’s rally and the Yen’s move we see the classic style of safe haven play in uncertainty. What we haven’t seem – as you will note – is a rally in the Aussie dollar. Sure some will say that RBA Assistant Governor Guy Debelle’s comments in a speech yesterday that the Aussie dollar was

“somewhat on the high side”  and ”There’s no limit on our ability to supply Australian dollars,…We have more Australian dollars than anyone else in the world because we print them,”

thus implying that the RBA could intervene if they wanted is the reason the Aussie is lower and that may be so. But at the risk of banging on a drum the Aussie did not rally in increased uncertainty.

It is not a safe haven – a safe harbour at best and as you can see in the chart below traded under 1.02 last night.

The Aussie seems biased toward 1.01 at the moment.

Turning to other news overnight Fed Chairman Bernanke gave solid support to the easing policy and bond buying strategy that the FOMC is conducting. Last week there were thoughts, which we shared, that perhaps the Fed recognises the risks it is running in the unconventional policy and the impact it is having on markets particularly stocks. However overnight in his Testimony Bernanke said,

To this point, we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation,

No mucking around there he is clear – jobs are still the focus and the Fed goosing stocks is seen as less troublesome than having less people in the work force. Of course at a humanist level we could not agree more, we want to see as many people in jobs around the world as can be found but while Bernanke’s comments show the Fed will stay the course there is no denying that its program is a potential cause of instability down the road – its just he sees the risk as small compared to getting people back to work.

These comments together with a solid year on year rise of 6.8% for the Case Shiller House price index and the big bounce in the Richmond Fed index from -12 to +6 helped stocks in the US shake off the European weakness. At 7.22 with 38 minutes to go the Dow is up 103 points or 0.75%, the Nasdaq is up 0.28% and the S&P has rallied back to 1495 for a rise of 0.48%

Earlier in the night as noted above Europe was under the pump. Adding to Italy’s near 5% loss, Spainish shares fell 3.20%, the CAC dropped 2.67% the DAX fell 2.27% and the FTSE was 1.34%.

To recap FX markets after all the ructions and big moves this time yesterday the Majors are largely unchanged day on day. In commodity markets Crude is down 0.63% but copper, wheat, corn, silver and gold were all higher. Looking directly at gold we said last week that it could rally as much as $50 from the pessimistic crescendo that we saw and it is now up more than $60 from the low sitting at $1609 up 1.83% on the day. On the charts however  Gold’s rally does not look over so further strength is probably in the offing.

Data

Kiwi Trade data, Japanese retail trade and Australian construction work are on the agenda this morning before business confidence data in Europe and durable goods in the US tonight.

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

Vantage FX | Italian Election hits markets hard, Euro down, USDJPY crashed and stocks pressured| 26th February 2013

February 26, 2013 By

It has been a very long night for traders as the ebb and flow of the expected results in the Italian election causing large swings in currency and equity markets. Indeed while the centre left seems to be going to be able to form Government in the lower house the Senate is less clear with no majority but it is increasingly looking like the other side of politics, Silvio Berlusconi’s crew will have the upper hand.

This volatility in exit polls and the actual counting has been the primary driver of markets own volatility overnight with early reports that a clear victor would be found turned to ashes when it became clearer that the result would be less clear cut with the potential of a hung parliament of different stripes in the upper and lower houses as noted above.

The possibility of gridlock or paralysis is high and we will all be watching the ebb and flow of negotiations and announcement for the next few days.

Ans so traders would be licking their wounds this morning haven driven the Euro up to 1.3318 before driving it all the back to a low of 1.3126 with it sitting just up 11 points at 1.3137 as I write. The Euro has also plunged against the Yen with a ludicrous almost 400 point range with EURJPY making a high of 125.20 to a low of 120.99 and EURJPY sits this morning at 121.61 as we write. You can see the poor performance of the Euro in the table below. Even the pound out pointed it.

The Yen itself was much stronger reversing off a marginal new high at 94.76 on the back of the news about Kuroda and the Governorship of the BoJ which was seen as extremely yen negative given his dovishness in Asian and early European trade. USDJPY traded all the way down to 92.79 off 1.23% at present at 92.64. A break into and through the 92.30/91.90 zone is still required for us to call a conclusive top for this run but USD/JPY is getting closer. NOTE: as we were posting USD/JPY crashed and has now taken out the crucial 91.90 level – we would expect it to get chased back a little but for us the trend has now reversed and some shorts have been triggered – as dangerous as this feels.

The Aussie has also had a bit of a ride trading down to 1.0260 yesterday after the weaker than expected Chinese HSBC Manufacturing PMI which seemed to miss by a mile before a rally back to around 1.0315 before plunging again below 1.0270 where it sits this morning down 0.36%.

cygnetAll these moves mean nothing if somehow something positive comes out about the Italian election or some sort of deal or compromise over the Governing of the nation emerges. But that is a little market Cygnet that we have no ability to guess at. indeed if the last 25 years have taught me anything it is that the idea of an expert in Italian politics is an oxymoron.

Perhaps, that is, except for Silvio Berlusconi himself so we hold some hope that at his advanced age he might be able to cobble something, some sort of compromise together for the greater good of Italy and as his legacy. Unknowable as this is however we have to focus on what is in front of us and the reality is that the Italian election when coming on top of the weaker GDP data over the past week, the rubbishy PMI’s and the downgrading of the economic outlook by the Euro Commission itself leaves no one in any doubt that Europe is still in a lot of strife.

In 2010, 2011 and 2012 it was a Euro sourced imbroglio that knocked markets mid-year and although this is a little early in the year could we be heading down the same path again in 2013? Time and the Italian electorate will tell.

Looking at stock markets it was volatile in European trade on the back of the Italian news but given what is occurring in US markets Europe may have a little selling to do if nothing positive comes out in the next 12 hours. At the close the FTSE was up  0.30%, the DAX up 1.45%, the CAC up 0.40% while Italian stocks were 0.73% higher. In Madrid stocks were up 0.81%.

In the US with an hour to go and so with 60 minutes of time with which to react to fresh news the Dow is down 0.48%, the Nasdaq is off 0.37% and the broader S&P 500 is down 0.63% to 1506. Looking at our charts it looks like the S&P is very close to confirming a top is in. A break of 1494/6  opens up a run toward 1453 as you can see below

On Commodity markets Gold’s rally continued with the yellow metal up 0.89% to $1589. Silver also was supported up 1.85% to $28.96 oz. Crude was largely unchanged at $93.15 bbl. Copper was up a little for a rise of 0.24% while the grains volatility continued with Soybeans down 0.75%, wheat off 1.78

Data

Inflation expectations in New Zealand this morning, Governor King speaks in the UK tonight and in the US the Case Shiller house price index will be the key focus.

But let’s face it – nothing beside the Italian election and to a much lesser extent because of the Italian election the next BoJ Governor story. 

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

Vantage FX | Sterling lower, Stocks bounce, Aussie Strong| 25th February 2013

February 25, 2013 By

Stocks reversed the mid week swoon on Friday and the UK lost its AAA rating amid talk from Fed officials that the FOMC is not about to rush to exit its policy stimulus any time soon. In what looks like a fairly light start to the week economically we’ll hear from the Fed Chairman Ben Bernanke this week (Tuesday/Wednesday US time) when he walks up the Hill to give what used to be called the Humprey Hawkins testimony to congress. Our guess is after seeing last week’s fall in equities and increase in tension in the market he will try to soothe fears of an imminent withdrawal of stimulus.

Certainly the market will be looking for this type of reassurance and if he fails to deliver then this is a big risk for stock markets and possibly a big support for the US dollar. But all things being equal the more likely outcome is stocks to be supported by Bernanke and the US dollar slightly undermined.

Looking back to Friday the big news for FX markets was that the UK has been downgraded one notch by Moodys Investor Services from Aaa to Aa1. Moodys said that

The main driver underpinning Moody’s decision to downgrade the UK’s government bond rating to AA1 is the increasing clarity that, despite considerable structural economic strengths, the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy,

The UK has been struggling to exit the economic weakness for years now and is at risk of slipping back into recession. Outgoing BoE Governor King has had his go at unconventional monetary policy and ran inflation at 4% for quite some time but monetary inflation is hard to encourage when the underlying economic demand remains weak. So incoming BoE Governor Carney is likely to do something extremely interesting and unconventional which is likely to put further pressure on the Pound which has now broken both a big uptrend from the 2008 low as well as down through the bottom of the channel it has been in since mid 2010.

As we noted last week we are now targetting a move of about 10 big figures toward 1.42 over the months ahead.

Looking at the dailies GBP is very over stretched with the crash of the last week which took it from the previous Friday’s close above 1.55 to approximately 1.5150 last week.

Of course everyone is going to be focussed today and probably the next few days on the Italian election and whether the outcome gives more or less clarity to the chances of Italy sticking to the deals entered into and the policies undertaken by the Monti Government. Indeed it is worth noting a Wall Street Journal article over the weekend with Bernard Connolly was running the European Commission’s Monetary Affairs Unit when he was sacked 17 years ago for saying that the Euro would usher in a crisis eventually.

It is an article well worth a read but we thought that we’d highlight a point worth remembering both given the election and the trend over the past 3 years for Europe to blow up around April May. Connolly was quoted as saying in the article,

The European political class, he says, believes that the crisis “hit its high point” last summer, “because that was when there was an imminent danger, from their point of view, that their wonderful dream would disappear.” But from the perspective “of real live people, and families and firms and economies,” he says, the situation “is just getting worse and worse.”

Protests around the zone over the weekend about austerity programs and the loss of Britains Aaa rating show the bind politicians are in. They don’t seem to be able to win either way and in time might loss their careers.

Which brings us to the Euro which was saved a little by the stronger than expected IFO Business survey in Germany which printed 107.4 versus 105 expected with the expectations component also strong printing 104.6 versus 101.3 expected.

We are looking for a test toward 1.3016 this week prior to Bernanke’s speech which could be a good catalyst for a change.

The Australian dollar took on all comers last week rallying against the Major crosses as you can see below.

RBA Governor Steven’s sanguine comments about the Aussie which implied neither that it was overvalued nor that the RBA were inclined to intervene kicked the Aussie higher on Friday as did his somewhat even handed outlook on interest rates when he said that an easing was more likely than a tightening. This was in some quarters taken as a warning to the interest rate bulls but as we noted in our Weekly Summary,  the market is a little divided with NAB reckoning he is still going to ease while the CBA seems less inclined to think so.

As can be seen in the chart above the Aussie is ping ponging within quite a wide range and although Friday night’s close was not that flash in terms of where it has been a few hours earlier the daily charts are building momentum. But unless or until the box breaks its just a wild roller coaster ride around the same track again and again and again.

Turning to stocks there was a relief rally on the back of the German IFO data mentioned above and some dovish comments from the Fed Brotherhood in the US. After the swoon mid-week the Dow closed the week up 0.87% at 14,001, the S&P regained 0.9% of the previous two days 1.9% loss on Friday closing up 14 points to 1,516 while the Nasdaq was 0.97% to 3,162.

In Europe there was a strong rally with the FTSE up 0.71%, the DAX up 1.03%, the CAC fairly roared up 2.24% with Madrid up more than 2% as well while in Milan stocks rose 1.40%.

On commodity markets gold is sitting at $1,572 oz this morning after it tried to climb back inside the down trend but was likely rebuffed both by the technical damage done to the price during the week but also with the equity rally reducing the need for the golden safe haven. Gold’s outlook in many ways rests not with itself but with other markets in the days ahead. Silver found some support for the third day in a row around $28.30 oz in MT4 pricing terms. Crude had further weakness below the previous day’s low but recovered to have a small rally on the day closing at $93.36. Soybeans fell 1.78%, Wheat dropped 0.87% and Corn was largely unchanged.

Data

The Italian election is front and centre in our time zone today if/as news filters out about the results.

HSBC Chinese M’fg PMI is out with the Chicago Fed National Manufacturing Activity index out tonight together with BoC Governor Carney’s speech which will be interesting to hear.

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

Vantage FX | Stocks lower, US dollar and Yen gain from safe haven bid| 22nd February 2013

February 22, 2013 By

The risk to this stock market rally was always going to be the data or the ability of earnings to underpin the Fed’s goosing of stocks and then of course as we have seen many times since 2009 when the Fed’s balance sheet is not growing the stock market struggles.

So in many ways the last 24 hours have been the perfect storm for this equity bull market. 

First of all the FOMC Minutes reinforced the reality that the Fed needs to withdraw stimulus at some point and the fact that they are becoming concerned about the withdrawal of this stimulus sings loudly the fact they are thinking it has or might go too far and is becoming unstable. So traders now know, or at least have been reacquainted with the fact that the Fed stimulus is not meant to be endless.

Secondly the data from Europe overnight was very disappointing with the Markit PMI’ all lower than they were last month. Indeed the US manufacturing PMI although still nicely above the 50 expansion line was also lower. This highlights the fact that the data flow over the past few weeks across the globe has been on the weaker side of expectations as we saw reinforced again last night with the PMI’s and the Philly Fed survey which was expected to bounce from last month’s -5.8 to +1 by the punditry but instead printed at -12.5 for a shocker of a result. Even initial jobless claims which had been a positive for a while now jumped 20,000 from last week to 362,000 overnight.

Now of course the conundrum is that weaker data is likely to stay the Fed’s hand on any withdrawal of its buying program but with the genie out of the bottle and with markets having recently hit 5 year highs and with momentum having stalled in many markets it is our view that yesterday’s FOMC minutes will weigh on markets for a while yet.

The result of the above was that Stocks in Europe were absolutely pole axed.  Milan was the stand out looser dropping 3.13% as the proximity of the election weighed. Madrid was 1.81% but the CAC in Paris was sold heavily with a loss of 2.29% while in Frankfurt the DAX fell 1.87% and in London the FTSE was 1.62% lower.

In the US with about an hour and 20 minutes to go the Dow is down 0.48%, the Nasdaq is off 1.21% and the S&P is 12 points or 0.79% lower. As Joe Weisthenal of Business Insider wrote this morning its not exactly a crash but with the market having gone up without retraacement for so many weeks now the level of chatter in the market reflects the feeling that further weakness might be in train.

Indeed as you can see in this chart of the S&P 500 the bull market, or at least the positive trend as measured by our trend following method (one of them at least) is at risk of reversal. So far we have seen the S&P rise without being able to break the trendline top for something like 3 weeks while at the same time staying above our fast moving average. But in the last few days the S&P has rejected this resistance, broken through our fast moving average (meaning we scale out of positions) and last night the low was on our slow moving average which is the point where we go flat if the price pierces this level.

So for the moment it is a little too early to say the bull market has ended on our usual indicators but it is clearly at risk and we feel there is more price falls to come once/if the slow moving average gives way. If 1489 goes look for a 50 point drop in the S&P 500 and a resultant drag on many other markets.

Now of course the Fed’s little bit of uncertainty about the timing of the withdrawal of the stimulus and the fact that they are talking about it is of itself good for the US dollar. Add in a bit of instability in the Equity markets around the globe and you get a bit of a safe haven bid for the US dollar and also for gold as we saw overnight.

The USD has done pretty well for the second day in a row. USDCAD has clearly broken decisively higher at 1.02, EUR lost 0.73% and is back below 1.32 sitting at 1.3185 this morning and more than 1 big figure below the high of the day. Sterling was absolutely crushed in afternoon Asian trade but found some buyers in the 1.5130′s and they chased it all the way back to 1.5249 for a gain of 0.11%. USDCHF rose 0.43% and the Aussie dollar was under pressure as well falling to 1.0225 as we write.

The Aussie is interesting for the safe haven believers because if their idea had any real traction the Aussie would be higher along with the USD not under pressure to break lower as it is at present.

As you can see in the chart above the Aussie has been in a broad box since the low above 1.02 last week and support should be found in this 1.0215/25 zone if it is not to break back down toward the 1.0140 region. Yesterday we though the Aussie might find some support and we went long in the 30′s looking for a run to the 60′s which we got before the reversal again. Today however we don’t have a strong view and will step aside unless 1.0215 breaks which might get us short.

Turning to the Yen and we see that it rallied 0.52% against the US dollar with USDJPY now sitting at 93.04. We have been bullish since the 78/79 region but we see USDJPY as needing a solid retracement and believe that it will fall into our 91.90/92.30 support zone. We now expect it to break lower but we’ll have to wait and see.

Turning to commodities and we see that Gold was under pressure but took a bid tone from the equity sell off. If this is  the new market meme for a while then Gold’s weakness should be over for a little while and if it can break back into the recent down trend it has the potential for a substantial rally. Perhaps even $50.

As you can see in the chart above gold tested but was unable to break up the down trend overnight. Silver had a better night as well but Crude fell heavily when the EIA stock pile data came out showing a build of 4.143 million Bbl against expectations of a 1.9 million increase. Crude dropped 2.39% to $92.94 and as we said yesterday we think it has still some way to fall.

Data

Nothing of note in Australia today but more data from Europe tonight is likely to keep pressure on the Euro and European stocks.

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

Vantage FX | Crash, bang, wallop – Aussie, Gold, GBP and Crude tank| 21st February 2013

February 21, 2013 By

A big night and some very big moves in FX and commodity markets overnight with the Aussie falling more than 1 big figure, Gold slipping sharply down through $1600, Silver likewise fell sharply off almost 3% as was Nymex crude and Sterling is now only 75 points from the decisive 1.52 level which IF breached will open up a 10 big figure fall potential.

Looking at Sterling first it was the Minutes of the recent BoE meeting that have set the cat amongst the pigeons. Outgoing Governor Mervyn King led an attempt, along with David miles and Paul Fisher, to have the BoE increase the size of its bond buying program by £25 billion which was a surprise to the market. When taken in the context of the BoE recently increasing its inflation outlook the market is clearly fearful the risks are that the BoE throws caution to the wind in order to get the economy going which is putting further downside pressure on GBPUSD.

As you can see in the chart above GBPUSD has actually pierced the bottom of the support zone but not closed below it yet but it is very close and there is a lot of clear air between this level and 1.42.

The other important Minutes out overnight were the FOMC Minutes which came out at 1700 GMT or around 6am Sydney time and showed that the fed is starting to recognise that the flow of easy money can potentially, or is, lead to instability within markets particularly at the stage where they need to withdraw or reverse the stimulus. Interestingly rather than have a fixed end date at 6.5% unemployment which could cause huge ructions as all of us outside the Central BAnk Conclave know the FOMC members seem to have had a light bulb moment with the Minutes saying,

A number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,

Sing Hallelujah! They get it finally but that doesn’t make it any easier to empty the bath without the baby going down the plug hole and the review that they have flagged of their asset buying program at the March meeting is now a critical point for stocks and other markets.

These minutes seem like they might have put a top in place for stocks. 

Turning to gold the sell off continues which for us is not unexpected although the big fall through the bottom of the downtrend channel and the push well through the Bollinger bands is faster than we’d expected. But then again we have always thought that Heisenberg’s Uncertainty Principle had a role in markets in so far as we can’t know both the target and when it will get there it is one or the other so we focus on the target which remains $1525.

As you can see in the chart above Gold is pretty much on its lows for the day and well below the significant moving averages we watch. As we noted in previous notes our trend following systems are short but it seems the market is at risk of turning even more bearish if our calculation that the 50 day moving average at $1671 and the 200 day moving average at $1668 is correct. Should the 50 day moving average, the fast one but not our fast one, fall below the 200 day moving average, the slow on but again not our slow one, then we’d have a signal for many traders that the bear market has begun. So watch the moves in the next couple of days.

Silver also has decisively broken down with a huge fall overnight of 2.71% to $28.67 oz. The low for the evening was right on the last Fibonacci support of 23.6% of the move from the June to October 2012 rally. Personally we never use this support level but others clearly must.

In FX Land we have noted Sterling’s weak performance and the NZD was also smashed after the RBNZ’s hollow comments about intervention hit the market yesterday. If ever there was a case of a central bank outmatched by the market with a currency that is too big by trading and international standards then it is the RBNZ and the NZD – but hey a little bit of jawboning worked. Lets just hope they never have to actually do anything – that would be an ugly battle for the Central bankers.

The Aussie’s fall of 0.87% or more than 1 big figure from yesterday’s high almost pales in comparison with other moves in FX Land. Yesterday we noted the resistance at 1.0373/75 but thought the Aussie would break higher initially. This changed during the day and we actually went short with a stop at 1.0377 taking our profit far too early at 1.0316 with a take profit while we were asleep because we didn’t for a moment think it would fall out of bed as far as it has sitting at 1.0262 as we write. What a messy period of trading we have had recently.

Looking fundamentally for a moment German CPI data was bang on expectations but PPI was a bit higher in January up 1.7% against expectations of a rise of 1.5%. In France the Business CLimate survey was a little higher than expected while CPI was lower. In Italy the industrial sales and orders data was weak while in Britain the claimant count and unemployment rate were around expectations. In the US the housing related data was mixed with Building Permits very strong but housing starts and mortgage applications a little on the weak side while PPI gave no surprises.

But stocks, which were already under pressure after a weaker night in Europe have really come under pressure from the FOMC minutes. With 45 minutes to go the Dow is down 0.67%, the Nasdaq has fallen 1.26% and the S&P is off 1.04% or 16 points at 1515. In Europe the FTSE managed to climb 0.25% no doubt excited by the prospect of more monetary easing while in Germany the DAX fell 0.3%, the CAC dropped 0.69% while Milan and Madrid were off 0.82% and 0.76% respectively.

On Commodity markets Crude was sharply lower dropping below $95 Bbl and our technical view is that Crude has some way further to fall.

Data

RBA Foreign exchange transactions today in Australia and then it is Markit PMI time again with the release of dat for France, Germany, Eurozone, US and other jurisdictions. In the US jobless claims will be important as usual and crude stocks given the last days move could be crucial for Nymex prices.

Catch me on Twitter @gregorymckenna

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

Vantage FX | Stocks surge in Europe, Yen rallies, Gold pressured| 20th February 2013

February 20, 2013 By

Stocks were driven higher by the much better than expected ZEW sentiment survey in Germany and the continuation of M&A activity in the US which is providing that little bit of oomph the market needs up here near all time highs. Elsewhere gold was a little lower and the Yen strengthened after the Finance Minister Aso seemed to contradict the Prime Minister about the prospect of the Bank of Japan buying the bonds of other nations. Sterling was weaker against the US dollar and Gilts are rising suggesting that the market is of the firm view that new BoE governor Carney is going to let inflation run and loosen monetary policy further.

Looking specifically at events the big surprise was the bounce in the ZEW survey in Germany which surged from 31.5 to 48.2 this month for a much better result than the 35 the punditry were expecting. The Eurowide ZEW survey was equally amazing coming in at 42.4 from 31.2 last. How business sentiment has turned around so aggressively after such a poor Q4 2012 in terms of GDP growth is hard to fathom. Indeed the result is hard to reconcile with the current situation that was evident in the german survey which actually FELL from 7.1 to 5.2 for a print much lower than the 9.0 expected.

Stocks in Europe rose sharply and hard. The FTSE was 0.96% higher, the DAX rose 1.62%, the CAC pushed up 1.88%, Milanese stocks rose 1.57% and Madrid rose 1.43%. So it was a great night if you were long but the dichotomy between the current situation and sentiment shows how much of this rally is related to a lifting of the fog of last year’s fear and uncertainty together with the global free money central banking culture.

As Michael Mackenzie wrote in The Short View in the FT overnight this break between reality and expectation poses a risk, not just for European equities but for many markets and recent moves,

This raises the prospect that at some point economic performance may disappoint. Before that occurs, faith in easy money can keep on pumping up asset values and further tilt markets into speculative bubble territory.

As McKenzie also says the trend is your friend – so we aren’t getting bearish or turning all chicken little but as a maturing trend at some point growth needs to come in behind the expectation otherwise once the Fed starts to wind back on its aggressive purchases, which could be as soon as June according to Joe La Vorgna of Deutsche Bank, the market is at a big risk.

Turning to the US the rumour of more M&A in the office supplies sector with Office Depot apparently in talks to acquire Office Max. Staples shares also rose. So with 23 minutes to go before the close the Dow is up 42 points or 0.30% to 14,024. The S&P is up 8 points to 1,528 for a rise of 0.54% and the Nasdaq is up 0.50% to 3,208.  As you can see in the Monthly S&P chart below it is nearing the top of uptrend channel that the S&P has been in since the start of this recovery in March 2009 and less than 50 points below the all time high from 2007.

Turning to Global FX markets the Pound was under pressure once again and while it is only down 0.27% to 1.5423 the pressure for lower prices remains as we noted ysterday. It is still 2+ big figures from the super important support but the recent long term uptrend has broken in the past week.

USDJPY was also a bit interesting overnight with comments from Finance Minister Aso that he was not considering buying foreign bonds in his loose monetary efforts seeing the USDJPY pullback 0.55% to 93.43.

Our view remains unchanged from what we said yesterday when we said,

We find it hard to get too excited given all our usual indicators which are flashing warning signs but unless USDJPY falls down into and through the 91.90/92.30 region the rally is intact.

The Aussie benefitted from the more ebullient tone and the weaker US dollar, which lost ground against the Euro and Yen, rising 0.55% from a low of 1.0298 to a high of 1.0367 sitting just below it at 1.0361 this morning. It is an ugly and confused chart as you can see below on the dailies but if the Aussie can get through 1.0375 then a further push higher is on the cards. The chances are high.

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

Euro of course rallied with the stock markets and the better ZEW sentiment surveys and has bounced of trendline support over the past 3 sessions. Only a break of 1.3300 would now force Euro lower in the short term.

Turning to commodites Gold looked weaker again overnight with a little rally fading and gold sits at $1602.80 oz for its weakest close since last August. Silver fell 1.43% to $30.00 oz with a low just above the bottom of the wedge it has been in for a while now. Nymex crude was up 0.72% to $96.55 Bbl as it dances in the range and the Ags were mixed with Corn down 0.50%, Wheat fell 1.38% but Soybeans surged 3.21%.

Data

In Australia we have Wage price index and then RBNZ Governor Wheeler speaks before a raft of European inflation data and critically for Sterling the BoE minutes from the recent meeting as well as UK unemployment data. In the US there is a raft of housing related data, PPI and then the FOMC minutes.

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

Vantage FX | Yen and Sterling under pressure, Aussie quiet| 19th February 2013

February 19, 2013 By

With the US out for President’s Day markets were left to their own devices overnight but that didn’t stop currency traders have a fat old time reinforing recent trends in the Yen and the Pound.

The G20 meeting over the weekend in being soft on the big developed nations and Japan in particular was seen as a green light to further Yen weakness yesterday but traders weren’t quite as aggressive as last week but still only just below the high of 94.45 with the overnight high of 94.20. Darth Vader would say that “the Force is strong in this Trend” and so it is. The USDJPY pierced the fast moving average on Friday but has rebounded solidly so far. We find it hard to get too excited given all our usual indicators which are flashing warning signs but unless USDJPY falls down into and through the 91.90/92.30 region the rally is intact.

Indeed ECB boss Mario Draghi seemed to reiterate the G7/20′s belief that the big countries have the right to manipulate their currencies through the domestic policies which are of course, cough cough no laughing, only aimed at domestic issues and not the currency. Reuters reported this morning,

“Most of the exchange rate movements that we have seen were not explicitly targeted, they were the result of domestic macro economic policies meant to boost the economy,” Draghi said.

“In this sense, I find really excessive any language referring to currency wars,” he said, adding that the euro’s exchange rate was “around its long-term average.”

The G20 statement was not disappointing, he said.

“What I did say at the G20 in Moscow, I urged all parties to (exercise) very, very strong verbal discipline,” Draghi said.

There is no doubt that emboldened by the cash that has been made from the the Yen win and with a new BoE Governor coming in with possibly even more aggressive policy than his predecessor the pound is now attracting the attention of the Macro Hedge Fund community. We have been bearish GBPUSD for some time now and the FT reports this morning,

top global macro traders – funds such as Soros Fund Management, Tudor Investment Corporation, Caxton Associates and Moore Capital – are increasingly looking at the pound. They see compelling similarities in the UK’s predicament to that of Japan.

Sterling has already slid against other currencies on a darkening economic outlook: exports are weak, productivity is relatively low and government finances are stretched.

For hedge funds in particular, though, it is the imminent arrival of Mark Carney, current governor of the Bank of Canada, as governor of the Bank of England that has pricked real interest.

GBP has been in a wild 10 cent range for the past 18 months and it seem biased back to the base of this range at 1.5230/50 as you can see in the weekly chart below.

Longer term though the following weekly chart shows just how important the 1.52 zone is but also highlights that GBP has broken a big uptrend (some might say bottom of a long term pennant in the past 2 weeks. So a break of 1.52 would open the way for a run toward 1.42. Our trend following systems are short.

So watch 1.52.

Elsewhere in FX land the Aussie is largely unchanged at 1.0291 having traded a range 1.0291 to 1.0315. Euro too is largely unchanged at 1.3351 having had a 50 point range while the USDCAD seems to be breaking out against the Canadian Dollar with a rise of 0.46% to 1.0108 and through that decisive median line on the chart we have been watching.

On stock markets with the US Closed Europe was mixed and really didn’t do too much. The FTSE fell 0.16%, the DAX was up 0.47%, the CAC rose 0.18% while Milan and Madrid both slid 0.51%. The Italian elections are coming up fast so that might be a cause of market angst again soon depending on how Berlusconi’s resurgence seems to be heading.

On Commodity markets Gold tried to rally but ended down slightly at 1609.50. Short term it still looks oversold but if we look at the US dollar’s performance we see that it is stronger against the Euro recently, the pound, the Yen, Swissie and the Canadian dollar amongst others. So to think that Gold can chart its own path. Gold closed largely unchanged at $1609 oz while Silver rose 0.69%.

Data

RBA Booard meeting Minutes could be market moving this morning if they give insight into the timing of any cuts. The Japanese leading index is out this morning as well and then all eyes will turn to the German ZEW survey tonight which is expected to increase from 31.5 to 35.

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

Vantage FX | Gold tanks as US dollar stronger across the board| 18th February 2013

February 18, 2013 By

It wasn’t the best week for gold bugs last week with the yellow metal trading under $1600 for the first time in 6 months since August of last year. We have been gold bears for some time and have an update coming out this morning but the fall of 1.58% was probably larger than we had expected to end the week. Clearly it leaves a lot of short term technical damage but not unlike the Aussie and other safe harbour or havens assets gold’s attraction comes from the crisis not from a muddle through sort of outlook where free money makes other asset classes offer better capital gain.

Equally silver was 1.66% lower at $29.77 and we retain the target mention last week of $29.25/30 to test support of the trend line – although as you can see in the chart below it just might find support right here and now given that this has been a pivotal level for the last couple of months.

Silver needs to hold $29.25/30 or we start looking for a level in the mid $26 region – remember though, we always respect levels until they break.

Elsewhere over the weekend the hollow shell that is the G20 global policy making body met on Friday and Saturday and released a Communique which summed up the global economic situation nicely we reckon so we will give readers a little bit of it,

Thanks to the important policy actions in Europe, the US, Japan, and the resilience of the Chinese economy, tail risks to the global economy have receded and financial market conditions have improved. However, we recognize that important risks remain and global growth is still too weak, with unemployment remaining unacceptably high in many countries. We agree that the weak global performance derives from policy uncertainty, private deleveraging, fiscal drag, and impaired credit intermediation, as well as incomplete rebalancing of global demand. Under these circumstances, a sustained effort is required to continue building a stronger economic and monetary union in the euro area and to resolve uncertainties related to the fiscal situation in the United States and Japan, as well as to boost domestic sources of growth in surplus economies, taking into account special circumstances of large commodity producers.

Doesn’t that just sum up the situation nicely.

The acute fear phase of the crisis seems to have passed so “tail risks” are reduced. But economically not much has been fixed and there are still many, far too many, people unemployed around the world. What this means for traders and investors is that the healing phases is going to continue to take time and the risks of bad news, a bit like last weeks GDP and industrial production data, remains high for a bit of the old black swan, or at least Cygnett to fly through every now and again.

On exchange rates the hollowness continued but oour reading of section 5 of the communiques which dealt with FX rates might be a bit controversial because to us it once again said do as we say not as we do.

We reaffirm our commitment to cooperate for achieving a lasting reduction in global imbalances, and pursue structural reforms affecting domestic savings and improving productivity. We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments and in this regard, work more closely with one another so we can grow together.

It is as if the G7 is saying through the G20 that we have the right to weaker currencies because we have weaker economies so back off.  Perhaps that is exactly what they are saying – so don’t expect any change in recent FX policies and don’t expect too much criticism of Japan.

Having said that though G7 this week might have succeeded in taking the heat out of USDJPY a little. Sure on the week it was actually up 0.85% as we highlighted in our new “That was the week that was“ Publication and Friday’s rallies in USDJPY, EURJPY, GBPJPY and AUDJPY all suggest that it was more Yen weakness in anticipation of the do nothing G20 we might see a consolidation pattern for a while around and below recent highs in the Yen crosses.

Datawise Friday night was mixed with UK retail sales tanking 0.6% versus an expectation of a rise of 0.4% in January. US industrial production was also weaker than expected falling 0.1% in Jany=uary against an expectation of a rise of 0.2% but the New York State Empire manufacturing survey was up sharply  to 10 from -7.78 last and the Reuters/Uni of Michigan Consumer confidence index rose to 76.3 from 73.8 last.

But the really big news was the leaking of a Walmart which said that sales in February had crashed. Bloomberg reported

“In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal- Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.”

Walmart closed at $69.16 from $70.80 but US markets in general managed to shrug this off to a certain extent with the S&P 500 falling just 1 point to 1,520 and the Dow actually rising 9 points to 13,982 while the Nasdaq fell 0.21%.

In Europe the FTSE was hardly changed at 6,328, the DAX fell 0.49% and continues to look weak technically, the CAC dropped 0.26% while Milan was off 0.33% and Madrid stocks were smashed falling more than 1%.

Around the rest of FX Land the Aussie was back under pressure as the US dollar did better hitting a low of 1.0287 before closing at 1.0301. The Aussie’s price action is a mess on the dailies as you can see in the chart below. We will see more of the support below 1.03 the Majors were talking about last week it seems as the US dollar gains a little traction in the week ahead.

On Commodity markets as mentioned above Gold and Silver were poll axed dropping sharply at more than 1.50% each. Crude also came under pressure falling 1.49% to $96.08 Bbl. Coffee was hit again down 1.05%, copper was largely unchanged and the ags were mixed with Corn up 0.58%, Wheat up 1.40% and Soybeans up 0.46%.

Data

President’s Day in the US tonight. But this morning we have New Motor Vehicle sales in Australia and after last month’s miss we are keeping quiet on this one. Otherwise a fairly quiet day.

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

Vantage FX | Euro hit by GDP Bomb| 15th February 2013

February 15, 2013 By

Yuk is about all we can say about the GDP reports that came out in the last 24 hours. Certainly the Japanese weakness was unsurprising but the data out of Europe, particularly Germany, was truly disquieting and suggests that the ECB will need to ease and if a recovery isn’t on the horizon as we had thought potentially joining the ranks of the quantitative easing club eventually.

Looking at the data even though we said that we weren’t surprised by the weakness in Japan the actual outturn for Q4 GDP of -0.1% was on the wrong side of the line with pundits having expected a rise of 0.1%. This quarterly result left the year on year growth rate at -0.6% clearly strengthening the hand of Abe and his plans for the BoJ. On that front the BoJ left rates unchanged at yesterday’s monthly meeting.

In Europe however the news was more shocking. Shocking is not a word often used in a financial summary but the data really was horrible. German GDP contracted a worse than expected 0.6% but it was the export engine particularly exports to the rest of the Eurozone that is clearly spluttering. French, Italian and Portugeuse GDP were equally all weaker than expected falling 0.3%, 0.9% and 1.8% respectively. Overall Eurozone GDP fell 0.6% in Q4 2012 and the year on year fall was 0.9% for 2012.

The Chinese recovery, or at least soft landing, has been encouraging us that German can push through but the acute weakness in its neighbors is clearly weighing on Europe’s powerhouse economy. What is they say? Lie down with dogs and you get up with fleas

Euro came under pressure as a result falling from a high of 1.3455 to a low of 1.3313 before rallying back to 1.3341 at present but it has been a damaging day technically as you can see in the chart below.

The focus now is on the support line from the low in November which comes in today at 1.3264 which is also where the lastest uptick above 1.35 kicked up from. We always respect trend lines unless or until they break, but our guess is that this level is going to be taken out in the next week.

Likewise the Yen looks to us to be finally consolidating its move against the USD with USDJPY off 0.32% to 93.06. This might seem incongruous given the weak GDP released yesterday but you’d have to say that there is a lot of Japanese bad news and aggressive monetary policy already baked into the cake and Dollar Yen has been due for a consolidation for some time.

But we have been fooled within our overall bullish framework a couple of times by USDJPY as it marched ever upward so it is reasonable to ask what’s different this time. The answer is nothing YET! The trend is more mature now, it has become more extended and our indicators are suggesting that the chance of a test of the recent uptrend is growing.

Looking at the chart above  you can see that USDJPY hasn’t yet touched our fast moving average so is still in an uptrend and this would be expected to be support as would the middle of the Bollinger Bands which is only a little above the recent uptrend line. But based on the combination of indicators that we use we think that a test is coming. As always unless or until the trend line breaks we respect it but if it does a deeper retracement is in the offing.

Short term a break of 92.70 signals a run to 92.00/05.

Elsewhere in FX land the Aussie has been unable to resist the US dollars strength falling back from the high of 1.0370 to be down 0.22% at 1.0346 but this is not really material when the Euro is down 0.81% and USDCHF is up 0.72%. Techincally the Aussie is hanging around this 1.0330/60 range at the moment without a decent catalyst to push it either side. We know there is solid buying below 1.03 as we saw earlier in the week but the topside still seems limited at the moment.

 

As you can see in the chart above the Aussie has found resistance at our fast moving average over the past two trading days and it came in at 1.03708 overnight just above the high. It needs to get through this level to kick higher.

G20 is over the weekend so we’d expect some sort of announcement.

In Stock markets Europe was under pressure from the weak GDP with the DAX down 1.05%, the FTSE off 0.50% and the CAC down 0.77%. France looks to be under real economic pressure and while it may not yet have the issues of Spain and Italy it is heading that way. Speaking of Spain and Italy their benchmark indices were off 0.75% and 1% respectively.

In the US the weaker lead from Europe has largely been nullified by the $23 billion Buffet led bid for Heinz foods which set a better tone. Equally jobless claims dropped 19,000 which is good news for the stock market if you invert that relationship.

So at 7.16 with 44 minutes before the close the Dow is up just 2 points, the S&P is up 3 points or 0.18% at 1523 and the Nasdaq is up 0.13%.

On Commodity markets gold continues to lose its lustre off another 0.6% to $1634 oz and we retain our bias that this is headed lower. Silver was hit harder however losing 1.66% to $30.95 oz and it may be headed toward $29.25/30 support. Nymex crude was 0.34% higher at $97.34 Bbl. Sugar fell 1.11% and Natural Gas was more than 4% lower.

Data

Kiwi retail sales this morning before Japanese Industrial production, Italian and Eurozone trade, British retail sales and then US industrial production.

Of course G20 could give us something to trade with over the weekend as well.

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