Vantage FX | Aussie, Yen and Gold rally as US dollar pressured | 21 May 2013

May 21, 2013 By Leave a Comment

Moodys threatened the US with a downgrade and the US dollar got hit and stocks dropped back a little in overnight trade.

This helped drive a very interesting 24 hours with Gold and Silver the big movers hit in early Asian trade and then rebounding as the US dollar came under pressure over the rest of the day. USDJPY reversed of the high of Friday after the Japanese economics minister said the Yen selloff was “largely complete” and even though stocks in the US were slightly weaker the FTSE eclipsed its 2007 high hitting the highest level since 2000 and within a small margin of the all time high from all the way back in 1999.

That buy and hold stuff really works doesn’t it? 14 years, gee whiz!

Anyway, enough of the rhetoric.

I didn’t get around to updating my CFTC data and charts till later in the day yesterday but when I did said,

New highs in USDJPY still didn’t manage to get the net short position back to the highs of the last 6 and 12 months – which might imply a lack of follow through and a very tired rally in USDJPY or tired Yen sell off.

That makes sense given all of the overhead resistance in this 102.70/1.0350 region we have targeted and been warning about for so long. It is a stretch given the re-emergence of USD strength to say the Yen is going to rally but the positioning remains a warning.

Not long after I decided to go short USDJPY with a bit of leverage on this basis and on the techincal outlook. It helped that  the comments from Economic Minister Amari were resonating around the market as well and as dangerous as being short USDJPY is in this long and very strong trend I have a clear stop in place so if I get stopped out it was just a trade that didn’t work out.

Clearly this is a long and persistent trend, clearly anyone trying to sell US dollars during this trend has been hit hard if they weren’t nimble. The key to a deeper sell off, and also support, looks to be the 101.60/70 initially and then if this gives way 100.75/85 with very big support at 99.93.

Dollar Yen has been higher for 8 months in a row and has rallied from around 79.50 when it started to a high on Friday night above 103. That is a very big and strong trend and we think Amari is right for now. Equally with the Japanese Government upgrading its economic outlook which is being mirrored in improving economic data relative to expectations and with all the overhead resistance perhaps it is time for USD to consolidate for a while – either in time or price.

On other FX markets the US dollar reversal yesterday helped lift the Aussie back up and above 0.98 hitting a high or 0.9827 before pulling back to 0.9804 at the moment. After falling for 9 out of 10 days in a row some sort of consolidation is expected and is not inconsistent with an overall downtrend. Indeed using my usual systemised but discretionary approach it is not beyond the realms of reason that AUDUSD heads all the way back to the 0.9970/90 zone which is where our daily fast moving average sits.

Clearly the Aussie has room for a rally as much because the punditry is now all universally out and about declaring it dead and on the way to 0.90 as you can see in this article in the FInancial Times. I guess as one of the first to both call and explain the change in Aussie sentiment and prospects and can be cycnical about the new found love for hating the Aussie being evidenced all over the place but the key is any rallies are counter trend and opportunistic within an overall move to test support at 0.9400 sometime.

Euro and GBP also rallied as did the CAD so we know that last nights move was a US dollar move – even gold and particularly silver managed to rally after early weakness. So the question is whether or not this is an early weak lack of data one day wonder or something more durable. We’d argue there is room for a reversal in many markets within an overall trend toward a stronger US dollar in time.

Turning back to stocks the Dow fell 0.13%, the Nasdaq dropped 0.08% (sounds hyperbolic when you write it like that) and the S&P fell 0.09%. In Europe as noted the FTSE rose 0.49% to 6,756, the DAX was 0.69% higher and the CAC was 0.54% higher. In Milan and Madrid stocks were under pressure falling 0.55% and 0.79% respectively.

On commodity markets as noted the weaker US dollar drove markets with Silver reversing off the acute early Asian sell off yesterday to close something like 10% off its low at $22.67. Gold also reversed off its weaker early morning to close up $19 at $1386. The volatility in the precious markets and the price action on Friday and then yesterday morning certainly suggest that the Barrons conspiracy theory we talked about yesterday has some legs.

Elsewhere Nymex crude was 0.65% higher, copper rose 1.08%, Soybeans rose 1.04%, Wheat up 0.99% and Corn fell 0.57%.

DATA

RBA Minutes are out today along with the Australian leading indicator of Economic growth. PPI in Germany tonight and a raft of inflation data in the UK. Redbook is out in the US tonight.

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

Vantage FX | Aussie and Euro lower as USDJPY breaks 100 | 10 May 2013

May 10, 2013 By Leave a Comment

Last night was all about the US dollar as the break of 100 against the Yen was a catalyst for a turn in stocks and the Euro and Aussie getting absolutely hammered. What drove the move which came after lunch New York time is difficult to know and different rumours have filtered through the market.

We prefer to simply look at the price action and note that in the Aussie in particular a move lower is simply the path of least resistance. The USDJPY move has been coming for a while and while we always trade the range/box until it breaks it is the break up and through 100 which is decisive and would have dragged longs into the market.  Positioning is such in Yen shorts that the past few weeks has given the Yen bears fresh space to take USDJPY higher. It’s true we didn’t see this one coming, certainly not in the timing overnight, but a break is a break and traders will be buying now.

jpy, usdjpy, yen, dollar yen, dollar yen quote, daily chart

Based on the usual Fibonacci projection from the break of the range a target of 1.0250/1.0350 seems reasonable.

Turning to the Aussie Dollar and it is important to note that we saw something different for the first time in a very long while yesterday after the employment data. That is after the bigger than expected rise of 50,000 in employment the Aussie spike from 1.0165 (BoK cut and Chinese inflation door saw it spike down just before the employment data) to a high of 1.0253. That is nothing new but what is new is that the spike brought sellers out of the wood work and it was clear that someone sat on it in the 1.0240′s. Noticing this we sold some for a bit of fun but given the low overnight was 1.0044 we exited way too early.

As you can see in the chart above Aussie has broken the range and we are now looking for a test of the trendline and 200 week moving average which comes in around 0.9850.

Yesterday’s data was strong and drove AUD up to the 1.0250 region but as the NAB wrote yesterday afternoon it is so volatile that it should be ignored. The outcomes of the past 3 months simply underlines why we don’t trade this release – it is simply too hard to forecast and too volatile relative to the normal range of forecasts so on that basis anything can happen with the release. Just something for traders to keep in mind going forward – preempting the Australian employment report is fraught with danger.

We are still short Aussie for our lifestyle position and will stay that way for a little while given that it is still losing ground on the crosses with the performance against the CAD continuing to be for us a lead indicator of the changing sentiment for the AUD.

Looking at the Euro it is

Turning to the Euro and it was the US dollars strength that has driven it back down to the bottom of the 1.30/32 range with an overnight low of 1.3009 after a high of 1.3177. The range remains the play and as you can see in the chart below the trendline remains intact for the moment. But a break of both the range, the trendline, which comes in at 1.2992, and the 200 day moving average at 1.2982 would be decisive.

It is an interesting outlook and really does hinge on the outlook for the USD and particularly USDJPY. So we will take a lead from those moves.

In the UK the decision by the BoE to keep policy unchanged had little impact on the market but GBP reversed lower with the US dollars move. We were wrong for a day but it feels like GBPUSD is heading lower.

Looking at the stocks as you can see in the chart of the S&P 500 things were looking good with Jobless claims printing another 4 year low of 323,000 until just after lunch which is when USDJPY broke higher and the Aussie and Euro got hammered. Equally financial shares came under pressure around this time and Apple also came under pressure.

It wasn’t a huge sell off by any stretch of the imagination with the S&P only down 0.37% of 6 points. The Dow was 0.15% lower and the Nasdaq fell 0.13%. In Europe the FTSE and DAX were marginally higher up 0.14% and 0.16% respectively but in France, Italy and Spain stocks were down 0.69%, 0.95% and 0.28% respectively.

Looking at Commodities we see the US dollar’s move had resonance here as well with Nymex crude off 0.68% to $95.96 Bbl. Gold and Silver were also a bit lower trading at $1455 and $23.60 respectively. Dr Copper was off 1.16% but Corn and Wheat were both up sharply with near 3% moves but Soybeans lagged only rising 0.8%.

Data

The RBA’s quarterly Statement on Monetary Policy is released this morning and will be interesting reading to see what was behind the move to lower rates this week and what might be in prospect. this might introduce a bit of volatility that would otherwise be absent on what should be a fairly quiet day before German trade data tonight.

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

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

April 29, 2013 By Leave a Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Data

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

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

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

April 15, 2013 By

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

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

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

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

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

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

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

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

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

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

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

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

Data

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

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

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

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

Vantage FX | Us jobs data terrible, Euro up, Yen and Aussie Down | 8 April 2013

April 8, 2013 By

The Jobs report in the US was an out and out shocker on Firday night printing at just 88,000 against expectations of an increase of 200,000. This data built on the weak ADP report and the unexpected up tick in Jobless claims over the week which has dented the certainty with which many market pundits held that the US economy was recovering. Of course one data point or indeed one months data points are just noise in the grand scheme of things but the internals in the Jobs data did suggest that the US fiscal policies are biting and that the focus on all the good stuff recently might have been a biit too panglossian.

And of course with earnings season kicking off and the markets still at or near record highs there are risks for US and global stock markets.

But looking first at Friday night stocks in Europe fell sharply with the FTSE down 1.48%, the CAC down 1.70% and the DAX dropped 2.03%. Milan and Madrid went in opposite directions with Italian stocks bucking the trend and rising 0.63% but in pain stocks fell 0.64%.

In the US stocks held in really well in context of a shock and very poor outturn for employment we’d have to say. After tanking on the oopen when the Dow hit 14434, the S&P hit 1540 and the Nasdaq hit 3169 all indices rose through out the day to close at 14565, 1553 and 3204 down just 0.28%, 0.45% and 0.65% respectively.

Earnings season is upon us and it is difficult to know which way this will go but it is worth looking at the current S&P 500 technical set up.

Our technical view is that the S&P 500 is going lower and a break of 1529 will confirm this in our system. This would then target a move back to 1480/85 and we’ll see how it looks there.

In FX land Friday was a wild ride for Dollar Yen traders and the early morning no liquidity period on the Sydney/Asian open has continued these extreme moves with USDJPY hitting 98.31 from a 97.50ish close on Friday night. Just what is driving USDJPY at the moment besides an abiding view in some quarters that the BoJ will be successful is hard to tell because intra-day volatility is completely ridiculous.

Take Friday’s intraday volatility for example – USDJPY opened around 96.10/20 traded up to around 97.20 then back to 95.93 around 9pm Sydney time before turning around and roaring higher once again for a new high at 97.82 on Friday night aand now this morning on Reuters it is atop 98. Wild indeed.

Our long held view was 100 back when USDJPY was in the high 70′s so we are as good as there and while we got creamed by Friday’s intraday volatility trying to play a little fade back below 96, we missed the rally above 97 but caught some of the move back below 96 that came later in the day. As yet there is no sign that the USD/JPY move is exhausted and eventually it will trade 150. Not yet certainly but in time.

Euro had a nice move as well and is up again in trade this morning as the US dollar get hits from the weak jobs (but stop and think for a sec and ponder why Europe and USDJPY are higher and perhaps why Aussie is lower). Euro traded above 1.30 Friday before pulling back and if it breaks the high of 1.3036 today it will be off to the races for a rally toward 1.31 and 1.3219 which are important Fibo levels from the recent down move.

For the Aussie dollar all the shenagins in other markets has left it under pressure – looks like cross selling rather than against the USD specifically as the US dollar weakness should, if things in currency markets were linear and stable equate to Aussie strength not weakness – but they never are, are they? We know have a double top above 1.04 and a break of 1.0350 will see us go short. It might rally toward 1.0380ish first though.

On Commodity markets gold did actually benefit from the US dollar’s weakness rallying 1.52% to $1580 while Silver also pushed higher up 1.69% to $27.24 oz. As you can see in the gold chart above the yellow metal (no not Caterpillar equipment) bounced off the bottom of the trend channel it has been in for some time. We still hold our long held view that gold is going lower but it seems that it is within this overall trend that its course is set so we remain “bearish” if I can use that term medium term but are simply trading the shorter term flows.

Crude was down but significantly off its lowest point which was at a very important trendline. Copper fell a little aand the Ags were mixed.

Data

AiG performance of construction today in Australia along with ANZ job ads. tonight we’ll be watching German IP.

And just a warning – be wary of moves in Asian FX markets today – they feel a bit dodgy already. We’ll be cutting our positions if triggered in half in respect of the volatility.

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

Vantage FX | USD dollar reversal looming as Gold and Aussie rally| 13th March 2013

March 13, 2013 By

The Australian dollar has traded up and through our slow moving average for the first time since January 22 this year. That level of 1.0302 is a critical indicator that the Aussie might be due for an extension to the topside. Likewise the Euro seems to be forming a base around the 1.2960 region and even the poor old friendless Pound is managing to bounce back from acute intraday weakness for the second day in a row. Trying to call a top in the USDJPY rate is one thing we aren’t too keen on but when we look at the Nikkei and its relationship with the Yen there is a chance that a small fall from where it closed yesterday would be an indicator for a drop back to 11790 from 12163 yesterday.

Oh and of course gold has rallied strongly overnight up $13.70 oz or 0.87% to $1,591 and looks like it has further gains in train and copper looks like it has a rally coming too.

All of which adds up to a bunch of markets that look like they are going to reverse recent weakness and all of which adds up to a looming period of US dollar under performance. Now of course the above view has no basis in the fundamentals of the US economy or US dollar versus these markets and does not mean that we don’t thing the US dollar is not going to be stronger a quarter or two down the track but for the moment it might be time for a little rest in the US dollars rally and a pullback to find where support really is.

The USD Index is at 82.55 as we write and seems biased back to 81.50/90 which isn’t a huge move but a drop through this level would signal a deeper retracement – it has to drop through first though.

Looking specifically at overnight moves in FX Land the Euro made a low of 1.2990 and a high of 1.3074 to sit down 0.12% over the past 24 hours at 1.3026. GBP had another miraculous day although it still remains pressured making a low of 1.4829 before rebounding to sit at 1.49 now down just 0.1% on the day. USDCHF is unchanged. USDCAD up just 0.05% at 1.0261 and the Aussie is up 0.37% at 1.0314.

 

As the chart above shows there is a clear trade here for traders who are so disposed. Either buy now with a stop below the recent low or buy as/if Euro breaks up through our fast moving average which today would be a buy stop around 1.3021. Of course the usual disclaimers and caveats apply and you must look to your own risk metrics but based on our usual indicators this seems a reasonably good risk reward trade at the moment on EURUSD

Yesterday in Australia we saw the release of the NAB’s March Business survey was another reminder that the Australian economy remains troubled. Business confidence fell from 3 to 1 and Business conditions fell from -2 to -3. Profitability was lower as well from -2 to -5, forward orders tanked but employment improved a little from -6 to -3.

That all sounds pretty poor really, or at least representative of an economy that is in the doldrums. Subdued is the word the NAB like to use to characterise the Australian economic performance in prospect  and so it is that the NAB is still forecasting 2 25 basis point cuts. Sure its down from the 3 they were expecting up until now but it still very much at odds with the marginal moves that the market is now looking for over the course of the cycle from here.

But the data didn’t hurt the Aussie yesterday which has now broken up and through our 1.31/1.33 box. Indeed as we noted above the Aussie has not traded through nor closed above our slow moving average since late January this year. This is a sign that the weakness we have seen since then when the Aussie was above 1.05 is turning.

Looking at our usual indicators the chances of a move toward 1.04 are now high. Short term the 1.0335 high overnight is key short term resistance and the overbought nature of the 1 and 4 hour charts needs to be washed out of the market if this is to be breached. A drop through 1.0307 today would open up some shorter term weakness on the hourly charts.

Yesterday USDJPY reacted to comments from Koji Ishida who is a Board member of the BoJ and seemed to suggest that the new broom of incoming BoJ Governor Kuroda won’t be able to simply sweep aside opposition to destroying the BoJ’s credibility. Interestingly though the FT reports that Ishida was skeptical of the changes that Kuroda will usher in but teh Japan Times is bullish on his comments.

FT

Mr Ishida described the central bank’s 2 per cent inflation target as “very high” and said it was attainable only “if a wide range of players make progress in boosting the competitiveness and growth potential of the Japanese economy, along with powerful monetary easing”.

Japan Times

Bank of Japan Policy Board member Koji Ishida said Monday the central bank can attain its 2 percent inflation target and pledged the BOJ will carry out “large-scale” credit-easing for that purpose down the road.

“I believe (the inflation target) is fully achievable if the Bank of Japan promotes powerful monetary easing and efforts by a variety of entities to bolster Japan’s economic competitiveness and growth,” Ishida said in a speech in Utsunomiya.

The consumer price index “is likely to reach 1 percent on a monthly basis around the end of fiscal 2014,” Ishida said, implying he expects the CPI will rise to 2 percent after fiscal 2015, which starts that April, at the earliest.

Interesting isn’t it but either way the markets reaction suggests it might be a little long USDJPY.

On stock markets overnight we saw an end to the stellar run in US equities, well sort of, the Nasdaq was 0.33% lower, teh S&P 500 fell 0.27% and the Dow was off till right before the close when it staged a quick rally to post a 0.02% rise and another new record at 14,450. MarketWatch says that the 8 day streak is the best winning streak since February 2011.

In Europe the FTSE managed to post a 0.11% gain even with very weak UK data which showed Industrial Production fell 1.2% in January against an expectation of a 0.1% increase and the 1.1% last. The year on year contraction in IP fell to -2.9% when the punditry thought it would rise back to -1.1%. Manufacturing production was also weaker, much weaker than expected.

On the Continent the DAX fell 0.23%, the CAC rose 0.10% but Milanese stocks fell 0.42% while in Spain stocks dropped 0.26%.

On Commodity Markets Nymex Crude was up 0.53% to $92.55 after the EIA said that the market in 2013 will be slightly tighter than had been previously forecast on lower supplies from Libya and Iran. As noted above Gold was up 0.93% and Silver rose 1.11% to $29.15 oz. Copper rose 1%, Corn and Wheat rose 0.88% and 0.94% respectively but Soybeans fell 1.65%. Frozen Oj was up another 1.32%.

Gold is looking like it is time for a run higher and we would now target a move toward $1619 for the moment and then see how it looks from there.

Data

Westpac Consumer Confidence in Australia today along with home Loan data. European IP tonight along with MBA Mortgage applications in the US and more importantly Retail Sales for February. These data are very important for expectations about the recovery in the US and thus the stock market.

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

Vantage FX | US Dollar rallies with stocks, Aussie opens week under pressure| 11th March 2013

March 11, 2013 By

Non-farm payrolls outpaced even the most optimistic of the punditry in February printing a rise of 263,000 with the unemployment rate down a smidge to 7.7%. The goldilocks equity market backdrop continues with an economy showing enough signs of life to boost stocks prices but not enough signs to rush the Fed to the exit doors from its bond buying or zero interest rates.

This data allowed the Dow Jones to finish the week at a fresh all-time closing high up 68 points or 0.5% to 14,397. The S&P 500 added around 7 points or 0.5% itself to sit just 14 points from the all time closing the week at 1,551. The Nasdaq was up 0.4% to 3,244.

Last week’s stock moves coming at such a mature stage in the equity market rally off the 2009 lows was truly remarkable as we noted in our weekly wrap over the weekend and while the bulls and the bears can have a great debate about whether or not the market can go higher or is setting itself up for a crash the reality is that the uptrend that has persisted for some months continues.

There is a little bit of resistance looming overhead for the S&P as you can see in the chart above. If we measure the rally from the May low last year to the September high before the pullback then the 1.382 move of this rally is just overhead in the 1554 zone. A mystical as Fibonacci projections are and as distasteful as some traders find them over the years one of our favourite strategies has always been to measure a move and wait for it to break and then run to a projection such as this. We have deviated from our long held references to these types of moves recently for some unknown reason but our trading has reacquainted us with them in the past week which is an interesting story in itself :) .

European stock markets were of course buoyed by the moves in the Dow and S&P buut due to their recent Italian election induced weakness and a little bit of under performance recently they handily outpointed US stocks on the week. Looking at Friday’s trade though the FTSE was up 0.70%, the DAX up 0.58% and the recently more volatile CAC was up 1.22%. The Club Med pairing of Italian and Spanish stocks roared higher rising 1.61% and 2.85% respectively.

One of the more interesting aspects of this rally recently has been the changing fate of the US dollar. As we have mentioned recently individually we see more weakness in Euro, Sterling and the Yen on the basis of the usual FX market least ugly contest and the recovery in the US economy relative to the moribund state of these three economies. But for a large part of the recovery in stocks the relationship between the US dollar and stocks has been an inverse one as stocks have been boosted by Fed action which also had the impact of debasing the US dollar.

That is clearly not the case at the moment with the Euro looking headed toward our target of 1.2650, Sterling being biased toward the low 1.40′s and the Yen at 96 still selling off hard against the US dollar. This is the new paradigm we were referring to in the title of our weekly post. The re-emergence of currencies being driven by relative growth and by inference relative return rates. Now of course that means EUR, JPY and GBP will all be in a downward spiral and competition for weakness which is somewhat problematic all at once but what it does do is reinforce the move of the US dollar higher.

As you can see in the chart above a break of the 1.2950 level would signal a deeper move down toward our target of 1.2650. Worth noting is the inability of the Euro’s rally last week to get up and through our fast moving average which reinforces the downtrend is intact.

For the Australian dollar the triple rejection of the 1.03 region last week reinforces the top of the box and it has opened weaker in Sydney morning trading than where it closed Saturday morning trading at 1.02 this morning. The overall outlook for the Aussie in a more positive stock market environment should also be positive, particularly if that positivity is sourced, at least to some extent, by an improving US economy. But as a safe harbour during the dark days of the GFC the opposite is now probably true as money get put to work elsewhere. So the Aussie remains within the 1.01-1.03 box but seems biased toward the bottom to find real support.

Elsewhere on commodity markets you would not have wanted to be short Frozen Orange Juice which surged 7.1% on Friday (at least according to Reuters). this is a truly phenomenal move for one day and given we don’t trade it we wonder where the exchanges circuit breakers are on this one. A move such as this will cause margins to increase which just might get it to reverse.

Anyway to markets we can trade, Crude was up a little at $91.87 a Bbl for a gain of 0.43%. Gold was up 0.11% and Silver rose 0.49%. Corn was up 1.93%, wheat rose 0.47% and soybeans were 0.33% higher.

Data

It’s CPI week all over the world this week  which kicked off with slightly higher than expected Chinese data yesterday with prices up 1.1% mom and 3.2% yoy in February. This morning we get New Zealand Electronic Card sales  and then Japanese machinery orders. We will be very interested tonight in the German trade data and whether or not the Chinese recovery has had any impact on Germany. This data could be an important trigger point for the Euro as might the Italian, Greek and Portugeuse GDP results be.

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

Vantage FX | US dollar stronger, gold, silver, crude Euro and Aussie lower| 1st March 2013

March 1, 2013 By

The US dollar steam rolled everyone and everything overnight as the buying continues to come into the buck and its trend to higher prices seems to be both reinforced and gaining momentum. Equally there were further rallies overnight for stock markets as fear washed out further and some German and US employment data gave some hope to the bulls. Gold was lower, the Aussie dollar had a shocker in terms of intraday volatility and the Euro slipped lower once again.

Looking quickly at the data the German unemployment rate held steady at 6.9% with a fall of just 3,000 in the unemployed but markets seem to have been happy that it wasn’t a bad result and as such it helped support European equities. In the US the GDP print  of 0.1% for Q4 was weaker than the 0.5% expected but in the grand scheme of things the difference between 0.1% and 0.5% annualised is a rounding error on the quarter and the market has decided to focus on the 0.9% growth in core personal consumption expenditures.

Market News International sort comment from the Director of Research James McAndrews of the New York Fed on the data and reports his response was,

We don’t draw too much inference in the trend rate of growth from the headline number of GDP.”

He noted that the growth in real final sales to consumers was “quite positive,” while the activity in autos, business investment, and home sales “are all things that we are looking at as very positive, things that are moving in a trend towards sustained growth.”

“We focus more on those aspects,”

And indeed the other data out overnight makes McAndrews’ point. The Chicago PMI bounced from 55.6 to 56.8 for a much better result than the 54.3 the market had been expected while jobless claims fell to 344,000 from 366,000 and the 360,000 expected. Falls in jobless claims have been a good indicator for the US equity market over the course of the GFC which to a certain extent belies the fear about the withdrawal of the Fed’s stimulus policy in a longer term and structural sense but the market is the market and when the stimulus does start to be withdrawn, even if it is largely because the labour market has improved and likely jobless claims are lower but that is a debate for another day.

Looking at the performance of stocks we see that at 7.05 with 55 minutes to go before the close the Dow is off its highs up 0.22%, the Nasdaq is also a little lower up 0.34% and the S&P 500 is up 4 points or 0.26% to 1521. From the charts this still looks like a topping pattern which doesn’t mean a crash or anything catastrophic necessarily but it remains a warning to investors to protect capital.

In Europe it was happy times all over the place. Spanish stocks rose 1.15%, the CAC was up 0.85% with the DAX up a similar amount while the FTSE and FTSE MIB were up 0.56% and 0.59% respectively.

ON FX markets the Euro is under pressure again as the US dollar’s rally continues. Euro had another 100+ point range day with a high at 1.3162 and a low of 1.3055 and it sits down 0.49% at 1.3074. Sterling had a small gain of 0.11% and sits at 1.5172 while USDJPY is up 0.44% to 92.61. USDCAD is still on a tear and is up 0.64% to 1.0292. This on looks like it is headed toward 1.07 possibly higher.

The chart above of the Euro clearly shows the risks of a deeper move. All we need to see is the Euro trade down and through the low of this week and the next leg toward our 1.2650 target will have begun. Equally this week’s low should be support but we don’t expect it to hold.

All of which points to an Aussie dollar that is under pressure and the price action yesterday certainly was ugly. Yesterday’s wild ride started with the stop run early in the morning taking it swiftly from 1.0200 up to 1.0245 and then back again before surging under the weight of a short market once again and aided and abetted by the Cap Ex data which prompted the CBA to put on a note to clients yesterday afternoon that the Mining Boom is not dead.

If you recall yesterday we said we thought Aussie would squeeze higher, which it did but only after falling half a cent first. Then as the market was clearly short it squeezed up to 1.0289/90 high before falling back under the weight of USD strength once again to sit at 1.0225 down about 20 points from this time yesterday.

The high of the past day was actually on an old trendline that has its genesis in the lows of 2008 and also our slow moving average on the dailies both of which suggests that the bias for the Aussie is still to the down side in a structural sense with last weeks positive move higher the only weekly advance of the past 7 weeks. Aussie still looks like it is having a round turn trip back towards 1.0098/1.0103.

Gold has now, or is now, closed lower for 5 months in a row. The reversal off the high of just two days ago has been pretty strong and brutal and technically in breaking back down through the trend channel points it lower again. As readers know we have been bearish for many months and remain so structurally. It doesn’t mean that we won’t trade the smaller waves and sometimes get it wrong on the day or the week and where we sit now is that we retain a downside bias and the fact that gold jumped more than the $50 we thought it would off the lows last week and has turned lower once again suggests some vulnerability in the price.

I have to be honest, I thought that gold would rally a bit further this week but the fall and the fact that it has now fallen for 5 months which is the first time in years I can see that gold has come under such sustained pressure and the fact that gold rallied to our slow moving average but was rejected at or around that price leaves the trend intact to lower prices.

In other commodity markets silver has fallen 1.74% to $28.44 oz and a break of $28.25 opens up the way to 26 bucks an oz. Crude was also lower, falling 1.06% to $91.78 a Bbl and it looks biased lower also. The Ags were stronger however with corn up 1.66%, wheat 0.53% higher and soybeans rallied 1.06%. Coton was another 1.83% higher.

Data

There is a raft of data to kick off March today/tonight. In Australia we get the AiG performance of manufacturing index before Japanese CPI and unemployment data and Korean Trade data. In China we have the NBS manufacturing PMI and the HSBC PMI out before we get UK house prices and German retail sales which will be super important. Then there is the suite of European Markit PMI data along with the Brazilian HSBC equivalent and then the US Markit PMI along with ISM and vehicle sales.

So a big night of data and one which will give a pointer to where the economies are headed.

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

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

February 22, 2013 By

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Data

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

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

Vantage FX | China data drives AUD higher, ECB drives Euro to 1.3250| 11th January 2012

January 11, 2013 By

Gold, Crude and the Aussie dollar were all up overnight on the back of the stronger Chinese data and a weaker US dollar. The ECB’s decision to hold rates and their veiled optimism for 2013 added to the US dollar’s woes with Euro breaking sharply higher to be back near the highs for the past 9 months above 1.32.

Chinese data was always going to be important yesterday but the 14.1% jump in exports was remarkable given that the pundits were expecting a rise of just 4%. This data reinforces the notion that the 7.4% GDP growth we saw in Q3 2012 is the low point in the cycle and growth is looking better once more.

Clearly this is a very positive sign for the Aussie dollar given the relationship between Chinese Growth and Australian GDP growth and also the demand for our rocks and dirt. This re-emergence of Chinese growth also feeds into the Aussie’s outlook via the RBA rate outlook and as noted long term China bulls it is now possible that they don’t cut in February. So positive feedback for the Aussie which is what we saw overnight.

In Europe the ECB is more optimistic about the outlook for growth with ECB President Mario Draghi saying,

“The economic weakness in the euro area is expected to extend into 2013. Later, in 2013, economic activity should gradually recover.

“Several … indicators have broadly stabilised, albeit at low levels and financial market confidence has improved significantly,”

The financial market performance is clearly important for European policy makers and the fact that things have stabilised has taken the pressure off them, at least in their mind, to a very large extent. But it is also an important reality for traders to note when they are approaching the markets and their trades.

It is easy to let your rhetoric or your view on economics and politics cloud your view of trading and or investing – this is always a great challenge for traders but their is a difference between trading and rhetoric as I wrote back in October. You can only trade the market in front of you – hard to do sometimes but important to try.

But in a fundamental and human sense the Greek unemployment data overnight highlighted that the global economic crisis is far from over. The unemployment rate in Greece hit a new record of 26.8% with youth unemployment at 56.6%. These are terrible numbers and Europe, and indeed the globe, will struggle to heal sustainably unless or until we start to see more people back in employment.

But the point is that the market has moved on, perhaps only for the moment but moved on nonetheless. This reality is summarised nicely in a quote I saw on MarketWatch this morning,

“In Europe the recession is not worsening, Chinese growth is accelerating and in the U.S., the worst of the fiscal cliff is behind us,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

So the onus is on the global economic bears to make the case at the moment – at least until expectations shift too far toward positivity.

Stocks

Europe didn’t really participate in the Asian or US rally overnight with the FTSE up just 0.05% but as we highlighted in yesterday’s Morning Call it is constrained by trendline resistance at the moment so further gains might be hard fought for the moment. In Germany the DAX  fell 0.16% while in Paris the CAC fell 0.39%. Italy held a bond auction of €8.5 billion 1 year bonds at 0.864% down from 1.456% back in December and the Milanese stock market seemed to like this as they rose 0.72%.

In the US stocks have risen for most of trade and are up strongly with 23 minutes to go before the close. The S&P 500 is up 0.68% or 10 points to 1470. The Dow is up 0.56% and the Nasdaq up 0.49%.

In Asia yesterday the Chinese data and weaker Yen combined to see the Nikkei up 0.7%, the Hang Seng rose 0.58%, Shanghai was up 0.38% and the Straits times rose 0.17%. In Australia the All Ords was up 0.32% and is likely to go higher again today.

Global FX

A night of US dollar weakness with the Euro rocketing higher from a low of 1.3037 to a high of 1.3266 and it sits at 1.3257 up 1.49% on the day. GBP is up as well after the BoE held rates steady. GBP sits just below the high for the night at 1.6156 for a gain of 0.84% on the day. The Canadian dollar was stronger again with USDCAD down 0.26% on the day sitting at 0.9847 while its commodity cousin the Aussie is up 0.77% at 1.0593 which is the Fibo projection from the break of the recent range that occurred after the Chinese data yesterday. The US Dollar did manage to rise against the Yen up 0.35% t0 88.17.

Looking at the Aussie dollar as we noted yesterday it seems to have acclimatised to the air above 1.05 and pushed sharply higher overnight. The Chinese data yesterday was unequivocally bullish for the Aussie as China is Australia’s number one export market and the pick up in its exports will be seen, along with the recovery in iron ore prices from last year’s lows, as positive for national income and likely to forestall the rate and pace of RBA rate cuts.

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

Techincally yesterday I said that I find it hard to be bullish but the data and the break higher changed that. I tweeted that the target was 1.0593 straight after the data. If stocks are going to continue to rally and if sentiment is going to be for economic recovery then the outlook for the Aussie is for higher prices.

Resistance is 1.0593 and above here 1.0638 and then the top of the uptrend channel the AUD is back inside comes in at 1.0655/65. But it is worth noting that the Aussie has broken, but not yet closed above, the down trend line from the highs in 2011 which is a pretty bullish sign for a run toward 1.08.

The Euro is up near the highs for the last 9 months and a break would be quite bullish but recently any forays to near 1.33 have been swiftly rebuffed so we are going to respect this range top unless or until it breaks. On the day a pullback under 1.32 toward 1.3180 seems in the offing as the hourly overbought status is worked off as you can see in the chart below.

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

Commodities

Crude is at an interesting juncture at present constrained by two competing trendlines which highlighted last nights range.

wti, nymex crude, crude oil, oil, oil chart, nymex crude oil chart

 

The set up is there for a fall based on my system but a short has not yet been triggered and news from China and of Saudi production cuts perhaps means it won’t be. Traders who play Crude should be watching closely in anticipation of a move one way or the other.

Gold and Silver were up sharply on the USD weakness rising 1.36% and 2.05% to $1673 and $30.82 oz respectively. Copper was also buoyed by China and USD weakness and rose 1.04%.

Data

Lots of data but most of it low profile so tonights UK Industrial production is probably the highlight.

Catch me on Twitter @gregorymckenna or @FX_Global

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