Vantage FX | Bernanke speaks, US dollar rallies, stocks and bonds sell off | 23 May 2013

May 23, 2013 By Leave a Comment

There was little inconvenient truth in Ben Bernanke’s speech and then questions last night that has sent US 10 years yields 11 basis points higher to 2.03% , the S&P and Dow down 0.85% and 0.52% respectively and contributed to a wild old night on FX markets.

In his prepared remarks Bernanke said that a premature tightening could endanger the recovery which eased fears about the so-called “taper” which helped drive the S&P up to an intraday high of 1687 before closing down at 1655. Euro rallied to a high of 1.2997 at this time, while the Aussie was 0.9827 before crashing to trade under 0.97 at one point.

But in questions later and in the Minutes to the recent FOMC meeting it is clear that the taper is well and truly on the table even if this doesn’t mean an end to QE – just a taper, smaller not ended.

When we see what the minutes said it is clear that the FOMC is still clearly concerned about the economy,

Many participants indicated that continued (job market) progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases

But it was Bernankes admission that a decision to taper could come very soon that really got things going,

If we see continued improvement and we have confidence that that’s going to be sustained then we could in the next few meetings … take a step down in our pace of purchases…

If we do that it would not mean that we are automatically aiming towards a complete wind down. Rather, we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward.

The US dollar strengthen, stocks swooned and rates rose.

This reaction is a clear signpost that the chart we used in our Free Weekly newsletter and again yesterday is what is truly underpinning the stock market rally – it is all about the Fed’s balance sheet and it is all about free money. But don’t get too bearish on stocks because Bernanke has not signaled, nor has the FOMC, nor does the economic recovery support an end to QE just a reduction – so buying will continue.

But at my core I am a behavioural finance/trader and swings in sentiment are as important to me as swings in fundamentals – indeed I believe that sentiment and all the biases in the market are fundamental. So like the swing in sentiment for Gold and then more recently the Australian Dollar we are now on the look out for a decent old retreat from recent highs in stocks and consequently a big uptick in yields and the US dollar which we see at the dawn, maybe a couple of hours later, of a new golden run.

Turning to the markets.

At the close Europe only had the good bit of Bernanke’s testimony to go on so closed stronger. The FTSE was up 0.53%, the DAX up 0.69%, the CAC was 0.37% higher and Milanese stocks rose 0.67%. But stocks in Spain couldn’t keep pace underperforming for the third day in a row with a small loss.

As noted above the Dow and S&P were lower and the NASDAQ ended down 1.12%

As you can see in the daily chart from my VantageFX MT4 platform the S&P’s price action yesterday was very ugly. 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.

On FX land the Aussie Dollar was absolutely smashed after rejecting the old trendline over the past couple of days that was support and now forms resistance as you can see in the chart below. The weaker Westpac Consumer Confidence result and the Dun and Bradstreet business survey yesterday when combined with the recent NAB survey really do point to a slow economy in Australia and more downside pressure on the Aussie.

The Aussie remains in a very strong down trend and even though it is very oversold in the sense that I usually judge it it is not the most oversold it has been in the past 12 months, that came at last years lows. So for the moment rallies remain selling opportunities.

Euro had a wild night as noted above and we think it is headed back to the recent low around 1.2750. GBP though is our main European focus at the moment and last night traded down to the recent low at 1.5018 after a high of 1.5172! Our bias is still for GBPUSD to head toward 1.42 and the retail sales data last night which were so much a big part of its sell off printing -1.3% against expectations of a flat result. USDJPY is back above 103 proving once again the folly of trying to pick a top in this run so far – perhaps that is a lesson for bottom pickers in the Aussie – but USDJPY is still in a fairly congested technical resistance zone. If it breaks 103.70 though…

On commodity markets the USD strength had mixed results with Nymex Crude down 2.12% after EIA stocks showed a slightly smaller draw than expected. Gold was 0.75% lower but Silver managed a small rally of 0.07%. Dr Copper rallied 1.15% and the Ags rallied strongly with Corn up 2.81%, Wheat up 1.25% and Soybeans up 1.13%.

Data

Consumer Inflation expectations in Australia today, HSBC Mf’g PMI in China before a raft of Markit PMI surveys in Europe and then the US tonight. In the US we also see the release of jobless claims, new home sales and Kansas Fed mf’g survey.

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 | Fed signals end to QE, Aussie Dollar breaks parity | 13 May 2013

May 13, 2013 By Leave a Comment

The Aussie dollar is currently sitting at 0.9997 in early Asian trade today and the Euro is at 1.2962 as the US dollar gains ground and most likely looks to continue to gain ground over the months ahead given the continuing difference between economic outcomes in the US and in Europe and given that the Fed has not too gently signalled that it is contemplating the withdrawal of some of the stimulus efforts that it is currently using to pump up the markets.

Over the weekend noted Fed mouth piece Jon Hilsenrath writing in the Wall Street Journal that,

Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy—an effort to preserve flexibility and manage highly unpredictable market expectations.

Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated.

So this is presumably the first step in the event that all of Wall Street has been waiting for… the end of the latest “quantitative easing” program and, thereby, the beginning of the Fed’s exit from the massive bond portfolio that it has built up over the past 5 years.

We know that at the time the previous QE’s 1 and 2 ended the market went into a swoon which reinforces the notion that the Fed’s balance sheet is the real reason stocks are up not anything to do with earnings or the economy. We hold that view strongly and would be concerned for the health of the stock market and its ability to hold its current level once QEinfinity ends.

So as we set up the week in early Asian trade we wonder what stocks traders will do with this news? Will they take it in the spirit that the Fed has tried to set it up as – that is a reminder that at some point they will need to take back the stimulus. Or, will traders take it as the beginning of the end and sell accordingly?

We have no idea to be frank and have to await the price action but the next 24 hours might be interesting for stock traders. This is particularly so given that the Dow and S&P both made new all-time highs on Friday night closing at 15,118 and 1,634 respectively while the Nasdaq was 0.82% higher. The DAX also made a new all time high rising 0.2%, the FTSE was up 0.49%, the CAC rose 0.65%, stocks in Milan rose 1.13%. Stocks in Madrid closed 0.32% lower.

But as you can see there are still plenty of bulls out there  with this week’s cover seeing Barrons double down on its bull market cover of a week or two ago with the cover saying that this bull has room to run and certainly if QE continues it has.

Equally the slow melt higher just keeps keeping on and the bullish stock market has also been hurting all those bears out there. Is the complacency now such that this Hilsenrath article can derail stocks sustainably? We doubt that. Will the article slow the rally? Possibly that is likely the Fed’s aim. Could it have no impact at all – possibly but unlikely.

One thing the article will do however is reassert the preeminence of the US dollar at the moment and likely drive the Euro and Aussie dollar and of course our friend the Yen all lower. What the Fed is signalling ultimately is a monetary policy shift at some point while markets widely expect the ECB, RBA and BoJ are going to have to keep cutting so we get an important swing there in support of the USD. Equally the current economic surprise index is strongly in favour of the USD relative to the economic outcomes in Europe, Japan and even Australia with the huge surprise in the employment numbers last week.

So on Friday night the Euro broke lower through the bottom of the recent trading range hitting a low of 1.2934. We went short in the 80′s and left a take profit on the night so we are square Euro looking to get short again sometime today. The little uptrend from the March low has now been broken and our bias is for a move down toward 1.2840 region and then 1.2750.

The Aussie has also broken down but far more decisively than the Euro with a big break of a year long weekly range. We continue to favour a move toward the 200 week moving average at 0.9857, which is also the trendline in the chart above, as a first target and then we’ll see after that. Some people are thinking the Aussie is oversold and perhaps on the dailies and hourlies it could be but the Weeklies have only just begun. As readers know we were about the first to get bearish the Aussie and now that the hedgies have all been talking about it a reaction in the opposite direction could result but the positives are being kicked out from under the Aussie and we are seeing sellers emerge on rallies not buyers on dips for the first time in quite a while.

In other markets GBP was under pressure and the Yen too remains pressure up near 1.02 this morning. We continue to favour a move to 1.035o for USDJPY.

On commodities Gold reveresed off the $1475 resistance and selling zone once again and it looks like the bounce and its momentum off the lows of recent times is fading and we are back to looking for lower levels. Gold closed down 2.18% at $1447 while Silver is 1.03% to $23.73 oz. Crude had a wild days trade before closing down 0.36% at $95.97. Dr Copper was up 0.43%.

Data

In Australia we have Home loans and the NAB Business survey – if you want a real read on the economy here it is today.

Industrial production and retail sales in China and then retail sales in the US tonight.

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

Vantage FX | Will the Aussie Dollar break lower even though stocks are rallying? | 9 May 2013

May 9, 2013 By Leave a Comment

The Bull market in stocks just keeps keeping on and anyone who follows a trend following strategy is going to be making out like bandits at the moment because the rhetoric that so many have about what stocks should and should not do is lost on those that just follow the price action. Hats off to them because these guys trade in a manner that most people can’t.

But the big news is not that the trend followers are making money while others are nashing their teeth and wringing their hands the very big news as I said on Monday,

In the words of the great market trading gurus of the past – DON’T, DO NOT, FIGHT THE TAPE

I also felt although I can’t remember where I wrote it that we’d see some bears join the ranks of the bulls and so it was overnight that noted doom and gloomer Nouriel Roubini said (via the guys at Business Insider) that the rally could go on for a year or two,

“There are two forces,” he said. “You have the gravitational forces of the slow economy leading eventually to correction. But then the levitational forces of QEs, zero policy rates, more money coming in the market – not just from the U.S., but from other economies – it’s going to levitate asset prices.”

And while we have no idea on the duration of this rally – neither does Roubini for that matter – as we also said on Monday it is bad news that is needed to knock this rally rather than good news to feed it given the prevalence of QE and free money and likelihood that the ECB is eventually going to join the QE world.

Indeed in overnight action after the better than expected Chinese trade data yesterday the fact that German industrial production rose 1.2% which was higher than the 0.6% expected was almost a no brainer given the relationship we have observe between these data.

So the Euro rallied – we’ll get to that later – and stocks were higher with the FTSE up 0.39%, the DAX up 0.83%, the CAC rose 0.88% while in Milan stocks rose 0.78% and in Spain stocks rose 0.62%.

In the US it was more of the same with the Dow and S&P pushing to new all-time highs rising 0.32% and 0.43% respectively to 15,105 and 1,633. The Nasdaq rose 0.48%.

Turning to FX markets the Aussies lag across the board speaks volumes of the turn in sentiment. We have all heard about Soro’s bet on a lower Aussie earlier in the week and overnight his disciple Stanley Druckenmiller told the Sohn Hedge Fund conference that,

“We think the Australian dollar will come down and will come down hard…Its expensive.”

Here at GlobalFX we were amongst the first to sing from this hymn book so we can only but agree and reiterate that we have a llifestyle short awaiting the tipping day when the Aussie does fall out of bed.

But that tipping point day is unlikely to be above the 1.0100/20 range bottom that we still see as our short term target. But when it goes our target is the 200 week moving average and another trend line from 2011 at around 0.9850.

You can see the weakness in the Aussie when you look at it on the crosses particularly against the Canadian Dollar which is doing well against the USD and also the EURAUD which is rallying once again. AUDCAD is below.

Watch out for the unemployment number today for a bit of an impetus for the Aussie. While we’ll stick with our lifestyle short into the figure we do not trade or punt this number – because of its inherent volatility we stop doing this back in about 1990. So be careful traders.

On other FX markets we got GBP wrong and thought yesterday mornings BRC retail sales might knock it lower but it was dragged higher by the Euro’s rally overnight. The Euro got close to the top of the 1.30/32 range/box making a high of 1.3194 overnight and it sits at 1.3156 this morning. As you can see in the chart below Euro is really going nowhere at the moment but a range break either way would be important for a week or two’s trade. We respect the range until it breaks but will run with the

Turning to commodity markets Gold and Silver are bouncing up and down within a range sitting at $1473 and $23.82 oz. If Euro is going to break out and USDCAD to head through parity then precious metals might also spike a bit higher as the USD weakens. Crude was up 1.04% in New York to $96.61 and Dr Copper was seriously encouraged by the Chinese and German data rising 1.83% in US trade.

Data

Unemployment in Australia is due out today with a rise of 12,000 jobs and a stable unemployment rate at 5.6%. In New Zealand employment data is also which mmay provide a trading opportunity for the AUDNZD rate.

Nothing much in the US but in the UK IP and a BoE are out.

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 | With the S&P above 1600 and the Aussie atop 1.03 markets are loving risk | 6 May 2013

May 6, 2013 By Leave a Comment

This rally is relentless and Friday night’s better than expected non-farm payrolls drove the S&P through 1600, propelled the Dow through 15,000 for a time and kicked Dr Copper 6% higher.

In the words of the great market trading gurus of the past – DON’T, DO NOT, FIGHT THE TAPE

Surely this is going to be the meme of the week. Surely risk is going to be on in Asia today and in markets this week. Perhaps even the idea that we can sell in May and come back in 3, 4 , 5 or even 6 months is out this year given there has been so much talk about it recently and the S&P 500 has so decisively rejected and bounced off the important 1520 support zone.

If the history of the QE world tells us anything it is that the Bull MArket grinds on relentless like the “little engine that could” but that the Bears need feeding – they need bad news to overwhelm the central banks goosing of stocks, they need bad news to overwhelm the free money and almost infinite discounting of the cash flows associated with stocks and they need bad news to feed their strength.

Initially the reporting season was looking weak but now we’d say it looks about average. Initially the Cypriot issue was a problem but it has recededed into the back and initially it looked like weak data might derail the bulls and feed the bears but a ECB cut, Japanese Stimulus and the Fed signalling last week that it is looking equally at scaling up purchases in its QE program as scaling down has put a floor under stocks and pushed the sellers to the sidelines unless or until a grey or black swan pops up to feed the bears.

Rhetorically and economically the price action of the markets doesn’t really seem right given the underlying structural weakness in the global economic system but rhetoric will see you go broke. Price action and the study and following of it is what this website and these reports are all about and as the stock market in the US makes new highs, as the Aussie Dollar bounces of 1.0219 again and as Dr Copper bounces 6.73% in US trade we have to respect this price action.

Is it the dawn of another golden age for stocks? We don’t know but as you can see in the monthly chart below the S&P 500 has broken up through both the recent high and the long term trend for the tops of the 2000 and 2007 peaks. So for the moment the US stocks are the little engine that can.

Monthly, Weekly and Daily trend indicators remain robustly in a bull trend.

Turning to the catalyst for all this positivity – the non-farm payrolls printed 165,000 versus the expectations of 145,000 but the real kicker was the positive revisions to the previous months data which saw March revised up to 138,000 from 88,000, and February increased to 332,000 from 268,000 painting a different picture of where employment in the US is currently at but not threatening a Fed reversal.

So at the close the Dow was up 142 points or 0.96% to 14974 after a brief foray above 15,000 earlier in the day. The Nasdaq was 1.15% high as the tech stocks really take a leadership role in this rally and the S&P 500 had another new all time high and all time high close trading to 1618 and 1614. In Europe the FTSE was 0.93% higher, the DAX surged 2.01%, the CAC rose 1.41% while stocks in Milan rose 1.04% and in Madrid stocks were up 1.65%.

Importantly for those of us who think that Europe can not austerity its way to growth the French Finance Minister Pierre Moscovici said over the weekend (Source Bloomberg)

“We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said today on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.”

Portugal went the other way last week but while this is likely a good sign for France if they can figure a way through it highlights a rift in the Franco-German compact that has held the Euro project together for so many decades.

Now to Global FX markets and we see there were a few significant moves last week.

The Aussie held the very important 1.0219 level again over the weekend which saw it close above the big weekly uptrend and support the recent low once again. It reinforces the 1.0150/1.06 range the Aussie has been in for months now. Interesting as we highlight in our look at the hedge fund and CTA traders positioning in FX markets later this morning you’ll see that Aussie longs didn’t budge last week suggesting it is a break below 1.02 that is important.

As you can see in the weekly Aussie Dollar chart above there is little momentum in the AUDUSD at the moment as it remains in a 12 month box. On the dailies the price action is equally tortured and while the bounce off 1.0220 was and is strong the big hurdle for the Aussie this week is the RBA meeting tomorrow – will they cut rates? It’s hard to tell and the majority of pundits still think they are about a month away so as long as they are not uber bearish on the outlook in their statement the Aussie may get a lift from the RBA holding fire this month.

If they don’t however the big question is going to be can the Aussie withstand another cut and we’d argue the medium term answer is no given that besides overall global positive risk appetite the positives for the Aussie are souring.

The Euro benefitted from a generally more positive risk environment on Friday rallying to be at 1.3113 this morning but still trapped in its 1.30/32 box. USDJPY rallied as well back above 99 on Friday’s New York close and this morning’s early Asian trade. Importantly for all traders who have a fundamental bent to note is that after 6-8 weeks were the data was universally undershooting expectations at an increasing rate last week’s data showed an improvement and the Citibank Economic Surprise index for the US even managed to claw it’s way out of negative territory – only just but still out of negative territory which is another positive underpinning for risk.

GBP remains in a positive uptrend and may be on its way to 1.57 and USDCAD looks biased back toward parity to test its long term uptrend.

On Commodity markets as we noted Dr Copper rallied strongly and Crude was up 1.72% to $95.61. Gold is at $1470 and Silver continues its volatile trade and is back above $24 ounce.

Data

It is a fairly quiet week for the US but in Australia we have a raft of data which includes TD Inflation this morning, RBA tomorrow and employment later this week. Could the RBA wait to see the employment data and then move in June? Probably there is never a rush to ease or tighten when monetary policy has such long lag time so we are guessing they may leave things as they are this month and then move after the budget.

In Europe tonight it is Markit Services PMI everywhere as well as Eurozone retail sales.

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 | The Aussie dollar is weak even though its up, Euro rallied to top of range | 1 May 2013

May 1, 2013 By Leave a Comment

The release of the much weaker than expected Chicago PMI data overnight which showed a fall to 49 from 52.4 last and the expectation of 52.5 failed to shake stocks with the S&P 500 closing on a new all-time high but it certainly shook the foundations of the US dollar which fell 1 cent against the Euro in the blink of an eye. how this can be when the European unemployment data earlier in the night showed further deterioration in unemployment picture is difficult to fathom. Equally in the context of the better than expected result in the rise of the Case Shiller home price index, up 9.3% YoY in Feb, and the huge surge in Consumer Confidence from 61.9 to 68.1 the Dollars weakness is hard to fathom.

As the chart above shows this US dollar weakness has driven the Euro back toward the top of the 1.30/32 box or range it has been in for a while now. One of our favourite risk reward trade set-ups is a top, retracement and then break (the reverse is also true) which then usually projects a move toward 1.382 of the move.

So the key levels in the EURUSD to watch are 1.31995 with a break projecting 1.3374.

But it wasn’t just the Euro that benefited overnight with the Yen strengthening and USDJPY lower but it’s the Canadian Dollar which is heading back towards 1:1 with the USD that is also a major beneficiary and the AUDCAD rate that shows that the Aussie is lagging on this bout of US dollar weakness which reinforces to me and us that even though the Aussie is up this week from the open around 1.0270/80 the outlook has soured a little for the battler recently vis a vis its previous place in the pantheon of currency gods.

AUDCAD is very close to breaking down and a push below 1.0380 which is the 200 day moving average would signal that the current break is confirmed and target 1.0233.

Interesting also and a signal that perhaps the currency game is changing a little is the fact that the AUDNZD had a small rally signalling that the Aussie Dollar outperformed the Kiwi which has done so well it pushed AUDNZD down below 1.21 when the “fundamentals”, such as they are, suggest something closer to 1.26/28. We’ll keep and eye on the Aussie and the Kiwi and in particular Dr Copper which was down 1.10% overnight because they are signalling that the global economic reality is seeping into FX markets and that has big implications across the board.

Before we move onto stocks its worth a quick look at the Yen.

The chart above shows the Yen strengthening with USDJPY sitting int eh support zone we have identified this week as key to the outlook. the low overnight of 97.01 is tright at the bottom of that zone and a print in the 96′s is likely to bring in further selling. As we noted on Monday,

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

We continue to hold that view and with the data this week being on the globally weak side Yen strength may return for a while.

Turning now to stocks and at the close of play the S&P made another marginal new high up 4 points or 0.28% to 1598. The Dow was up 0.14% to 14840 and the Nasdaq rose 0.66% to 3329. in Europe the FTSE was down 0.43%, the DAX managed to rise 0.51% and the CAC, Milanese and Madrid stocks all fell losing 0.30%, 0.96% and 0.38% respectively.

It is interesting to see the differing outlook between the stocks in the US and the US dollar and then the performance of the Aussie and Kiwi dollars which lagged and Dr Copper which fell. The outlook is certainly turning economically and the performance of stocks in this generally weaker May to November 6 months will be interesting to watch. Tonight Fed Statement after their meeting will be interesting to see.

On commodity markets as we noted Copper was down as was Nymex crude which fell 1.58%, Natural gas fell 1.16%, gold was up marginally to $1476 and on the Ags Corn fell 0.11%, Wheat rose 1.69% while Soybeans fell 0.27%

Data

Its May the First so it s the Labour day holiday in Europe. In Australia today we get HIA new Home Sales and in China the NBS Manufacturing PMI. ADP employment is important in the US in the run up to Friday’s non-farm payrolls and the Fed is crucial tomorrow morning.

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