Vantage FX | Wild swings and an Aussie snapback | 24 May 2013

May 24, 2013 By Leave a Comment

What a wild day the last 24 hours have been – there will be plenty of traders licking their wounds this morning after stocks, currency and commodity markets moved through wide ranges before snapping back.

Yesterday morning in Australia as the News hit that Ford is pulling out of local manufacturing the Aussie dollar was trading in the 0.9680 region but as the rumours turned to fact it dropped to 0.9650 before breaking down in the 30 region. It rallied in the lead up to the HSBC Chinese PMI getting back into the 60′s before the data printed below 50 and in the contraction zone and Aussie buyers evaporated and when the Nikkei and Yen joined the fray later in the day the Aussie made an eventual low in the 0.9590 region.

Speaking of the Nikkei as you can see in the 5 day chart it fell completely off a cliff yesterday closing at 14,483 for a loss of 7.32%. Exactly what drove the Nikkei’s fall is hard to know – some reports yesterday were that it was the Chinese data, some suggest that it was a result of the Fed statement the night before and of course it came while the Yen was suddenly strengthening yesterday so maybe that played a role.

From where I sit it is hard to know but there is going to be a retracement of sorts today after the US markets recovered well from their lows even if Europe struggled under the weight of the Fed statement and Japanese stock fall. The fact that USDJPY is 100 points off its low of 100.82 is also a positive for stocks on the day but I strongly believe that volatility begets volatility – as we saw in the Aussie Dollar recently – so it appears that stocks globally and the Nikkei in particular are entering a interesting phase.

At the close in Europe the FTSE was 2.09% lower, the DX was off 2.10%, the CAC fell a similar amount down 2.08% wil in Milan stocks dropped 3.06% and in Spain stocks were 1.40%. But US stocks recovered from early weakness as Jobless claims fell 23,000 to 340,000 and the Kansas City Fed index popped to 5 against expectations of -5. Equally most of the PMI’s in Europe and certainly in the US were slightly better than expected.

So at the close the Dow was only down 0.08%, the Nasdaq down 0.12% and the S&P fell 0.26%.

Yesterday morning I wrote,

If I use my usual trading system I would now say that I expect a test of support at 1639 and if that level gives way a move back to 1616. If that level gives way then we are in for a deep retracement.

We saw that overnight even though we did have a recovery and the 1616-1639 zone now looks like very important support. My outlook based on the technicals is for a retracement into this zone again and if the lower bound breaks then 1590, 1570 and ultimately if the sell off eventuates or gets legs 1520 is massive support. On the topside a break of recent highs is needed to change the outlook.

Getting back to currencies and the Aussie dollar I’m sure all readers at some point will have played with an elastic band and know that you can only stretch it so far before it snaps back. the Aussie has been searching for that point now for a week and the proximity of last years low at 0.9570/80 yesterday when the Aussie dipped below 0.96 seems to have been the point.

In many ways now the Aussie chart is the reverse of the S&P 500 chart above. We have had a sharp fall, approximated an important support zone and bounced back strongly with the Aussie around the 0.9750 region this morning. 0.9840 is the key overhead resistance representing the lower trendline on the chart above which was supposed to be previous support on teh way down but has already proved to be resistance since the fall. A break of that level would open a run toward 0.99. AUDJPY is also interesting and supportive of at least a consolidation in the AUDUSD as the low yesterday was exactly synchronous with the trendline going back to the start of the big AUDJPY rally last year.

As noted above the USDJPY moved through a huge range yesterday making a low of 100.82 after a high of 103.57 and it sits this morning at 101.96. Euro also had a big range and Euro is back in the zone where it broke down from after Bernanke’s comments on tapering the other night.  Short term Euro looks like it might struggle a little with only a break of 1.2960 opening further upside.

On commodity markets crude was largely unchanged, gold rose 1.78%, silver was 0.16% higher but Dr copper fell 2.31%.

Data

Kiwi export and import data is out this morning and then German GDP for Q1 tonight along with the Ifo business survey. In the US durable goods are out.

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

Vantage FX | Aussie drops below 0.99 can support hold? | 14 May 2013

May 15, 2013 By Leave a Comment

Here is an interesting stat for you – according to MarketWatch the Dow Jones Industrial Average rose for the 18th Tuesday in a row.

As I say that is an interesting but also essentially useless stat – indeed who keeps stats like these? Maybe you do if you are testing a trading system called “buy Tuesday”. However what is interesting is the fact that MarketWatch has felt the need to hone in on this obscure piece of information which suggests that no one has any idea what drove stocks in the US and Europe to fresh all-time highs last night. Indeed Business insider is reporting that stock futures were down but then a Fund Manager and Bull David Tepper popped over to CNBC and gave a bullish prognosis which turned things around.

Perhaps they are right because if you look at a chart of US stocks and it is onward and upward from the get go.

Either way it was new all-time highs with the Dow up 0.82%, the Nasdaq up 0.70% and the S&P 500 up 0.99% to 1,650. The European performance was lacklustre until the US market opened and by the close the FTSE was 0.82% higher, the DAX was up 0.72%, the CAC rose 0.53% while in Spain and Italy stocks rose 0.20% and 0.84% respectively. Data out of Europe doesn’t support stocks higher, not even close. Data last night on Industrial production, consumer prices and the ZEW economic sentiment survey speaks of more cuts by the ECB and a still moribund economic future for the EU.

But stocks at this level makes sense when viewed against the prism of the Fed’s balance sheet buying – something which will be the topic of our FREE weekly on Saturday which you can sign up for here.

What is really interesting is that Currency traders in FX land do seem to get the economic reality even if stocks traders don’t and the emerging trend of US dollar strength across the board continued overnight with the Aussie Dollar, GBP, Euro, Kiwi and Canadian Dollar all falling. Equally Nymex crude was down, as was Gold and Dr Copper fell 2.13% overnight. All of this points to USD strength and a trend that has got some serious longer term legs we think.

Having said that though both the USDJPY and AUDUSD rates are nearing important junctures in their trends. Looking first at the Aussie dollar the 0.9857 target is getting closer with a low overnight of 0.9872 on the back of the US Dollars strength. From early doors yesterday morning a bid came back into the Aussie driving into the 0.9970/80 region until Europe came in and took it up to an brief high of 1.0003 before the sellers rushed the bids and knocked the Aussie back 20/30 points in the blink of an eye.

As you can see in the weekly chart above the AUD is getting a little oversold sitting at 0.9888 this morning and has support in this zone but equally the Australian treasury’s ridiculously panglossian expectation that nominal GDP will be 5% in a couple of years is simply not credible given their recent inability to forecast the nominal world and so this is going to add weight on the Aussie as well because one thing we have always had is credibility with offshore investors. The Government and Treasury’s forecasting ineptitude over the past few years and the emerging weakness in the economy – or continuing I would say – is going to hurt sentiment toward investing in Australia and thus the AUD. That is not necessarily a bad economic outcome for Australia though because a bit of Aussie in the low 90′s would be economically welcome but it does reinforce the overall selling pressure on the AUDUSD.

Yesterday we noted that I might switch into short AUDJPY from short AUDUSD. I did that but unfortunately the USDJPY rate hit another multi-year high overnight trading up to 102.40 and it sits at 102.31 as I write. It is firmly in the resistance zone on a number of measures now and a break of the 102.70/1.0350 zone would be decisive.

The trend is clearly still up and clearly still strong – when and where the usual consolidation might come is hard to tell given the USD is getting stronger across the board but with all the convergence of resistance 1 Yen or so higher now is a reasonable time for a pause. But it’s a bull market so only the bravest or most active traders might go short.

The USD’s strength was also obvious in the Euro and GBP’s falls both of which look to us like they are going to have a round trip back to recent lows. As noted yesterday the initial target for GBP was 1.5179ish and we are just above 1.52 and now expecting a move under 1.51. Euro wise a break of 1.2872 suggests 1.2475.

Turning to commodities as we wrote yesterday we think Gold is on the way down again after not being able to breach the $1,475/80 region – abreak of $1,417 opens up $1385. Crude fell 1% to $94.22, Silver was 1.33% lower and as noted above Dr Copper is down 2.13%.

Data

New Motor Vehicles in Australia and then some big, very big GDP data out of Europe tonight with German, French, Italian, Portugeuse, Greek and Eurowide GDP. In the US the key releases are NY Empire Manufacturing index, Producer Prices and Industrial production.

So we have some meaty releases to sink our teeth into – Good trading.

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

Vantage FX | John Taylor says the Aussie is a bubble, Time to buy? | 14 May 2013

May 14, 2013 By Leave a Comment

Stocks went nowhere overnight with the DAX unable to push on from its new all time high last week and the US markets unable to capitalise on the better then expect retail sales data for April which showed a rise of 0.1% versus last month’s 0.5% fall and this months 0.3% fall which was expected.

At the close the Dow was down 0.18%, the S&P largely unchanged up 0.02% and the Nasdaq 0.07% higher. In Europe the DAX was flat, the FTSE rose 0.11%, the CAC fell 0.22%, Milan fell 0.65% and Spanish stocks were weighed down by financials falling 1.01%.

But while the nuances and vagaries of one months retail sales data was lost on stock traders FX markets didn’t miss a beat embracing the strength as another sign of the growing US dollar pre-eminence – particularly against commodities such as gold and oil and also against the commodity currencies of Canada, New Zealand and Australia.

From where we sit this is a huge story as it reinforces the notion that currencies such as the Aussie and a lesser extent the Kiwi were safe harbours for US dollar bloc investments during the past few years and are now being shunned as the US dollar benefits from a stronger or at least improving economy and the Australian dollar in particular is pressured under the weight of a weakening outlook for the domestic economy, budgetary position and global economy. As we noted yesterday and last week rather than coming in to buy Aussie trader are looking to sell strength. We heard in the market yesterday that offers had been lowered to take advantage of any rally which is truly a sea change in sentiment from the buy dip mentality of the past few years. Indeed the NAB reports this morning that John Taylor from FX Concepts which is the world’s biggest currency manager has also layed into the Aussie saying it is in a bubble – readers know that we were there before all of these noted names have been hitting the wires.

And why wouldn’t you be bailing on previously held positive views on the Aussie. When the data changes you need to change your view and the NAB survey yesterday was just another reinforcement of the headwinds facing the Australian economy. NAB is expecting Australia to do OK economically this quarter but take a dip in the second half. Worth noting is that even though the employment data last week was spectacularly strong teh employment index in the NAB survey was a shocker – so watch that space.

All of which means that at present Aussie is searching for bottom and sits at around 0.9950 today and we still think that the 0.9857 level will offer material support in the short term so we are approaching a zone where our short might be turned flat.

As you can see in the chart above the AUDUSD is almost there now and the short term time frames of the dailies and 4 hour charts are getting into heavily oversold territory for the moment  so we might put a take profit into the market soon as noted above. Given the above and noting the article by Vincent Cignarella of the Wall Street Journal yesterday we might actually switch our short from AUDUSD to AUDJPY.

Looking at USDJPY it is close to some potentially significant overhead resistance, finally some might say. We have been targeting a move to 1.035 but our monthly charts show an old line that was previous bottoms in 1998 and then 2004 and a high in 2009 which comes in at 1.0229 and then there is the 1.382 extension of the 97-100 range which comes in at 1.0270 so we expect this zone to be solid. Interestingly as an after thought we ran a Fibonacci  ruler over the move from the late 1990′s high to the recent lows in USDJPY and 1.0251 is the 38.2% retracement level. So USDJPY is hitting a significant resistance zone.

Speaking of Japan there was a big move in JGB’s yesterday with the 10 year up 9 points which doesn’t sound much but was something like a 12% sell off. Low yields on long bonds equal huge tick value and the longs would have taken a huge wack to their P&L. As you can see in the chart from Bloomberg below yesterday’s move broke back above a trendline which had been a previous floor but there remains  2 year overhead resistance in the next few points and a five year trendline comes in around 1%. If the point of BoJ QE is to raise inflation expectations then bonds by definition should also rise but we’d expect the BoJ to see this as unhelpful and enter the market sometime soon to drive down yields or at least cap them under 1%.

Rates in the US were also a little higher after the Hilsenrath article we talked about yesterday and the stronger than expected retail sales. Realistically a withdrawal of Fed stimulus and buying does put natural upward pressure on rates so there is a rebalancing going on which will see rates find a level but that level is likely to be higher and as such will reinforce the USD’s support.

Turning to the Euro overnight and it was  little boring quiet range day but the GBP has come under pressure once again and this on is increasingly looking like it is going to have a round trip trade back to the recent lows. Is GBP Dollar Bloc? I’ve always thought it was at the margin, perhaps dollar bloc should really be called commonwealth as we’d put the AUD, CAD, ZAR, NZD and GBP all in a similar basket sometimes. Either way a move toward 1.5150 from the current 1.5269 looks in the offing.

On commodity markets Gold too looks like a round trip after failing in the $1475/85 resistance zone we identified on April 22 when we said,

this looks more like a reaction to an acutely oversold market for the moment than to anything looking like a recommencement of the Gold uptrend. It looks like there will be better long term buying opportunities ahead and we would be selling on rallies into the $1475/$1515 zone.

Crude was off as well falling 1.21% to $94.88 which reinforces the US dollar nature of these moves and clearly identifies the emerging US strength as the trend to watch.

Data 

Retail sales in New Zealand this morning and then CPI’s across Europe and IP for the Eurozone and Import Export Prices in the US.

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

Vantage FX | Aussie Dollar holds range bottom as stocks celebrate Dow 15,000 | 8 May 2013

May 8, 2013 By Leave a Comment

The Dow closed above 15,000 for the fisrt time and the S&P just keeps on keeping on ending the day at another, yes another, all time high of 1,626. Interestingly for those us here in Australia used to watching the globe for an indication of what is going to happen in the Australian share market and the Aussie Dollar Market Watch laid the reason for the rally firmly at the door of the RBA when they wrote this morning,

U.S. stocks rose on Tuesday, with the Dow industrials closing above 15,000 for the first time, after Australia cut its refinancing rate and satellite-TV provider DirecTV and watch maker Fossil Inc. reported improved earnings.

I bet that will surprise the RBA board who firmly voted for the rate cut because of a deteriorating economic outlook, low inflation and a high Aussie Dollar. Indeed the fact the Aussie only had a low of 1.0152 might also surprise them given that it is clear in the statement that the high Aussie Dollar was clearly part of the reason for the cut saying,

The exchange rate, on the other hand, has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time.

So clearly the Aussie is partly the target of this action to take rates to a modern day low of 2.75% and they may be a little disappointed but as you can see in the chart below the Aussie has some serious range bottom support around the 1.0115/20 region so to get within 40 points is fairly close in the big picture.

We are still short but the 4 hour charts suggest that a rally back toward 1.0220/30 could be in the offing and maybe the Aussie’s outlook will hinge on the outcome for the employment report tomorrow where the market is, according to FXStreet, looking for a rise of 12,000.

Crucially for Australian interest rate markets, for the Aussie and for Australian bank stocks the RBA is saying that it will likely also need to cut again. It has been my view since late 2011 when I was treasurer of an ADI that rates would need to fall to 2.5% given the outlook for the economy and my read of it. Not many people were listening then but with only 25 points to go I have to admit that unusually I am thinking of putting my terminal forecast even lower given the outlook – perhaps 2%.

Now we know the Aussie is being targeted and by definition the RBA is looking at monetary conditions within the economy we can expect rates to be pushed much lower unless the Aussie get below parity.

Turning back to stocks for a moment the FTSE was higher on the back of bank shares closing up 0.55%, the DAX was buoyed by the much better than expected German factory orders which were up 2.2% against the -0.5% that was expected by the market. The CAC was 0.36% higher while stocks in Milan and Madrid rose 1.54% and 0.47% respectively.

In the US there was no material data out so clearly it MUST have been the RBA rate cut that drove the markets higher. Perhaps as cynical as we are about the reporting quoted above the fact that the RBA has had to cut rates in an economy that was seen as a bit of a miracle down-under does actually have something to do with the rally because it reinforces the notion that QE will be coming to Europe, that QE is going to continue in the US and so there are little headwinds – other than growth – to hit the share market rally.

On FX markets the better German data kicked Euro higher initially driving it to a high of 1.3131 but this was unsustainable as you can see in the chart below and the Euro is trading at 1.3077 this morning and clearly wanting to test support of the trendline below which comes in below the recent range of 1.30-32 at 1.2988 today.

On other FX markets USDJPY turned lower from near the highs of the recent range from a high of 99.43 last night to sit at 98.98 this morning. USDCAD is still headed lower and is just 45 points above our target of parity and big trendline from September 2012 that comes in at 0.9995. Sterling turned down as we noted it might in yesterday’s Morning Call but found support at out fast moving average which often happens – a break of this level which corresponds to 1.5444 this morning would signal a deeper move.

On Commodity markets Crude drifted off a little down 0.64% to $95.54 Bbl, Gold reversed from our sell/resistance zone again falling $19 to $1448 oz and Silver was 0.651% lower to $23.85 oz. Dr copper was off  a little falling 0.24% while the Ags were much more quiet than the previous night with Corn down 0.33%, Wheat up 0.94% and Soy Beans up 1.32% – relative quiet.

Data

The RBNZ FInancial Stability report is always an interesting read an is out today as is the Chinese Trade data which will be influential for the Aussie Dollar and Industrial Production in Germany will be important tonight. We expect that the German IP data might mirror the Chinese trade data. In the US it is once again a quiet night.

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

Vantage FX | Glenn should cut and the Aussie should fall – but will they? | 7 May 2013

May 7, 2013 By Leave a Comment

The RBA should cut rates today and the Aussie should fall down through 1.0200/20 for a double whammy of stimulus for the faltering Australian economy.

Yesterday’s release of retail sales which showed a fall of 0.4% against the +1.3% the previous month and the rise of 0.2% which was expected painted a picture of the weakness that is evident in the economy as the mining boom slows, as the high Aussie Dollar bites into retailing, what’s left of manufacturing, tourism and education and as Austrlians continue to focus on paying down debt rather than running out to spend. The Australian economy is not what it was, it is not the miracle that many offshore thought it to be and it is not immune from the ill winds of the global economy like many thought.

So the RBA should cut rates and the Aussie dollar should fall – but will they? This is an interesting question, if we we the RBA Governor or on the RBA Board we would vote for a cut. Certainly we recognise that there is only so much that monetary policy can do and the traction that rates are having is certainly less than has been the case in the past. But this is the point for the easing – with inflation low and the economy weakening and with the transmission mechanism weakened rates actually need to be cut more not less to get the same result as in the past.

If they do the Aussie will come under pressure but the extent of the selloff is initially likely to be dependent on the words they use if they cut while any bounce if they don’t cut will also rely on the words they use. But the reality is only Blind Freddy can’t see the state of the Australian economy and with the Budgetary position worsening further even if they don’t cut this month they will next.

But they should cut today.

Looking at the charts you can see that the Aussie once again tested support overnight with a low of 1.0217/19 again for the third touch of this zone. If the Aussie trades down through 1.02 the next support is 1.0115/20 but we would expect a run under 1.00 if this 1.02 gives way for a day or two.

In the short term the hourly and 4 hour charts suggest resistance is at 1.0290 with a break needed to get it back into the mid to high 1.03′s.

Elsewhere overnight the weakness in Chinese Services PMI we saw yesterday was mirrored in Europe last night with the German services sector slipping below the 50 level to 49.6 but this was better than the expected 49.2. Retail sales in Europe undershot heavily however printing -2.4% versus -1.9% expected. It is happening all over the world whether it is high unemployment or high debt consumers are under pressure across the globe.

At the close the DAX was 0.13%, the CAC fell 0.15%, stocks in Milan dropped 0.35%, while in Madrid they fell 0.48%. The London market was closed.

In the US the fireworks of Friday gave way to a much more sombre trading day with the Dow finishing down a little at 14,969, the S&P rose 4 pts to 1618 (another closing high) and the Nasdaq was 14 points higher for a rise of 0.43%.

Turning back to FX markets Euro turned lower once again and is trading at 1.3073 this morning. Surely it is going to break lower soon – isn’t it. USDJPY was a little higher threatening to break through the top of the box and take out 100 sometime soon. We always respect the range until it breaks but if 100 gives way as we discussed yesterday in our Commitment of trader report positioning in the Yen is such that a break of 100 could be fuelled by spec’s entering the market.

As is evident USDJPY is in a box but a break is going to be decisive either way. USDJPY tested 97 last week a couple of times and is now looking for resistance. We respect the box/range until it breaks but if it does we’ll be piling in with everyone else.

USDCAD still looks headed toward parity and GBPUSD looks to have formed a range top for the moment as well as you can see below. We are now respecting 1.5633 as the top and taking a short position against this level as a stop.

On commodity markets Nymex crude is up a little to $95.86 Bbl as was Gold which rose to $1469 oz. Silver was 0.24% lower and copper lost 0.5%. In the Ags Corn was pressured by hopes for increased planting falling 2.97% with wheat also falling 2.57% and Soybeans 0.72% lower.

Data

RBA Day today – so be careful in the lead up to and around 2.30 pm Sydney time. We’ll get some interesting lead ins earlier with the House Price Index and Trade data earlier in the day .

Tonight trade data in France and factory orders in Germany will be interesting.

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

Vantage FX | Aussie holds 1.0220 as stocks bounce back and Draghi signals negative rates | 3 May 2013

May 3, 2013 By Leave a Comment

This market like Rocky Balboa just keeps bouncing back from any type of slight or looming defeat so the the fall in jobless claims in US overnight to 324,000, a 5 year low, was enough to embolden the Equity market bulls once more and drive the S&P 500back to its recent closing high at 1598 for a rise of 15 points or 0.97%. The NASDAQ was 1.27% higher and the Dow rallied 0.89%.

Certainly the jobless claims is a hopeful sign for the US economy but tonight’s non-farm payrolls is going to be the key driver for the end of week close. The market is looking for 145,000 so look out for that tonight.

But the interesting thing about the data flow is that the PMI’s and indicators of manufacturing that have flowed this week speak of enduring economic weakness across the globe. Why else would central banks be cutting rates as the ECB did last night to 0.50% unless the outlook remains poor economically and why else would ECB boss Mario Draghi even float the idea of negative rates unless there is a real chance that the ECB thinks that things could get dire enough to require them.

But the FTSE, DAX and CAC managed to stay in the black rising 0.15%, 0.61% and 0.06% even though the PMI’s for the two big continental economies still signal contraction. Milan and Madrid stocks however fell slightly falling 0.12% and 0.15% respectively.

Indeed the moves in Euro last night show just how perplexing markets can be sometimes. The ECB rate cut from 0.75% to 0.50% sent Euro up through the top of its recent trading box to a high of 1.3215 but Draghi’s comment that the ECB is ready for negative rates drove it back to 1.3060 this morning. Does that make sense? Hard to fathom how virtually no interest on your Euro deposits drives Euro higher but only slightly less even if negative rates drive it lower. Rationally the difference of half a percent is hardly material but that is the world we are in bad news is good news but too much bad news is bads news. I’m back in Topsy Turvy land again.

The price action is writ large in the big down candle in yesterday’s 24 hours of trade. You can add a little uptrend line on the chart above which would suggest a break of 1.3030 today will push Euro lower. Realistically though we’d probably have the day off and wait to see the release of non-farm payrolls tonight and then go with that move either way.

Likewise in the AUD we remain short at the moment but not that once again the 1.0220 region was solid with the Aussie’s low at 1.0219 exactly the same level as last week reinforcing this 1.0200/20 zone as support for now.

1.0220 remains the key level and a weekly close below here will open the way for a deeper move maybe as low as 0.97 based on the technicals. We note however that AUDCAD recovered off the lows of yesterday as well so it is clear that the better equity price action is good for the Aussie and helping it hold in. Accordingly the non-farm payrolls is also going to be very important for the Aussie’s weekly close – as it always is.

Short term 1.0280 is resistance and 1.0220 is support.

USDJPY rallied back a little also over the past 24 hours and this 97 region is certainly building as a strong support level for the US dollar. We have seen USDJPY trade briefly below here over the past few days and we saw a survey of Japanese institutions yesterday which suggested a majority of institutions still think USDJPY is headed above 100 – perhaps they are on the bid. We will respect 97 as support for now but if it breaks on a closing basis a deeper move is in the offing.

It is important to note that the next day’s price action is a dangerous time to be trading if you are a discretionary trader with a non-sytematic proccess because non-farm payrolls is widely viewed as the single most important data release for markets each month and the lead up to and aftermath of ccan be volatile. So it is worth noting that we have no idea where non-farm payrolls are going to print tonight – the markets guess of 145,000 is as good a forecast as any. But based on the recent data flow the risks seem to be toward the downside and an undershoot, at least from a private sector point of view and with the current US Government’s own austerity numbers biting it is difficult to envisage government hiring picking up. But we don’t punt labour force numbers – we stopped that back in the early 1990′s because these things are just too volatile so we’ll see how the data flows and then react according to the markets price action in each of the currencies, indices and commodities we trade.

Turning to the Commodity markets  and we saw a remarkable turn around in energy markets from recent weakness with Nymex crude up 3.34% to $94.07. Gold rallied $1.48% or $21.40 to $1467 with Silver up 2.08%. In the Ags corn rose 2.38%, wheat rose 1.16% and soybeans 0.59%.

Data 

Its a holiday in China and Japan so trade might be light  in Asia but we see AIG Performance of Service index in Australia along with the PPI. In the UK Markit releases their Services PMI and the EC releases its economic forecast for the Eurozone.

In the US its non-farms and ISM non-manufacturing.

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

Vantage FX | Aussie, stocks and copper hit by weak growth | 2 May 2013

May 2, 2013 By Leave a Comment

Stocks and the Aussie Dollar came under pressure from weak data and we think the Fed’s statement that said they could “increase or reduce” the pace of its bond buying program which implies we think they recognise that the sweet spot of growth that seemed to pop up a few months back might have evaporated.

But the canary in the coal mine, as the team at Business Insider put it last night, was the release of the Korean export data which while positive was much weaker than expected printing just 0.4% YoY against the punditry’s 2% expectation. Clearly Korea has close ties with Japan and China and clearly Korea is a good lead on overall global trade so this data is a concern.

Add in a bit of weakness in the ADP employment survey which undershot with a 119,000 print against the 150,000 expected and the ISM manufacturing PMI which fell to 50.7 from 51.3 last month. It has been and remains our hypothesis that the Fed and others free money is goosing stocks higher but in the end the economy is where it is at and for assets like the Australian dollar which are still tied to the global growth outlook and perceptions of the miracle that is the Australian economy is vulnerable from this economic weakness.

Indeed stocks should be vulnerable too and at some point they will likely reacquaint themselves with reality. Last night saw a little bit of reality creep into stock traders minds with the Dow off 0.94%, the Nasdaq down 0.89% while the S&P was 15 points or 0.91% lower at the still heady heights of 1583. In Europe the FTSE was higher on the back of bank moves up 0.32% while the continent was largely closed for May Day.

Turning to the Aussie then and the weakness in the data which was accompanied by a massive 3.83% drop by Dr Copper and a 2.63% fall in the price of Nymex crude which is suggestive to us that the worm is really turning for the growth bulls or at least the outlook. The Aussie itself dropped over 1 cent from a high of 1.0382 yesterday to 1.0262 low overnight. It is sitting at 1.0277 as we write.

The Aussie looks biased back toward the low of the past few weeks at 1.0219 and should it close the week below this level then it would certainly suggest that the big weekly uptrend we highlighted back on Monday and turn the outlook significantly lower.

It is worth noting also that the AUDCAD level we highlighted yesterday crashed through and as I tweeted at the time I just love this trade.

Our target is 1.0233 for this cross.

Turning to the Euro it managed to hit 1.3242 at one stage overnight but has since sunk back to 1.3182. The candle is a warning to the bulls that momentum might have stalled and this certainly makes sense given the ECB meeting and announcement tonight where the market widely expects rates to be cut. In the face of this expected cut the Euro’s strength has been baffling but then again the data from the US hasn’t been so flash the past little while which is clearly what they FX markets have been focused on.

USDJPY looks to us to be biased lower still although it is steadfastly flirting with but rejecting the break of 97 which is necessary to accelerate things to the downside.

On commodity markets as discussed the fall in Copper was simply huge and it continues to signal a rethinking on the outlook for global growth. Gold has backed off the resistance zone of 1475 we highlighted a week or two ago falling 1.76% or about $25 to $1451. Silver was off 3.47% to $23.53 and Nymex crude was down 2.72% on the back of the huge build in stocks which rose 6.696 million Bbls against the expectation of just a 0.8 million build. In Ags Corn was 0.15% lower with bigger falls in wheat and Soybeans which dropped 1.56% and 2.06% respectively.

Data 

In Australia building permits, export and import prices and then tonight the ECB interest rate decision and initial jobless claims.

 

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

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

April 30, 2013 By Leave a Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Data

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

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

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

April 23, 2013 By

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

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

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

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

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

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

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

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

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

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

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

Now, to Global FX Land

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

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

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

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

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

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

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

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

Data

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

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

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

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

April 19, 2013 By

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

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

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

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

Anyway to the markets.

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

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

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

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

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

Data 

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

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