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 Gold searching for bottom | 20 May 2013

May 20, 2013 By Leave a Comment

Stocks made fresh all time highs in the US on Friday night with the Dow up 0.79% or 121 points to 15,354, the Nasdaq rose 0.97% and the S&P 500 was 1.00% higher after Consumer Sentiment rose sharply to its highest level in years.

Europe was higher as well – not quite so hot but still rallies across the board with the FTSE up 0.53%, the DAX rose 0.34%, CAC rose 0.55%, Milan rose 0.35% and stocks in Madrid rose 0.46%.

But amongst all the high 5ing as the Dow and S&P push higher the debate about the sustainability of the rally or continues – readers know our view, the economic back drop doesn’t underpin the stock market rally but the Fed’s action certainly do. If you are interested in a deeper understanding of this transmission mechanism we looked at it in this weeks subscriber newsletter which you can sign up for here.

Indeed noted Money Manager Felix Zulauf who is always insightful and a key member of the Barrons roundtable crew put out a piece last week which I think neatly summarises the problems facing the global economy and the debt that economies are carrying. But the reason I include the quote below is because it neatly summarises why Australian households are running their own austerity programs or at least why the rate of growth in debt has slowed and it highlights why the domestic economy will struggle to fill the void of the retreating mining boom.

As long as structural debt and demographic problems remain untackled, I doubt the industrialized world will get back on the growth track of previous decades. Regarding our debt problem, every borrower has a limited capacity to borrow, even governments. When the borrowing begins, it means the borrower can spend (invest or consume) more than his income. In an aggregate sense, economic growth at that time accelerates. Once the borrower reaches his borrowing capacity, he can spend only what he earns or live off his savings (if he has any). At that time, economic growth in an aggregate sense slows down. If his income decelerates at the same time, the spending or the economy slows even more, bringing to the surface all the structural problems of our Ponzi schemes, from our state health systems to our state pension systems and so forth.

Now of course at present the difference – and I think the true source of the Australian economic miracle – is that Australians largely get mandated payrises each year so the tide hasn’t receded.

But the problem with personal and household debt remains as you can see in the chart from the RBA’s monthly chart pack. The RBA rate cuts are having an impact on the percentage of income paid by households on the debt they hold but there has been no material change in the level of debt carried by Australian households.

So Australian households don’t have much fiscal space to borrow and it would be naive to think that they are going to be able to consume much past the rate of growth of income given the limited capacity for debt.

All of which means that there is little option for consumers to fill the gap that is being and is going to be left by the receding tide of the mining boom.

Which means that the turn in the Aussie Dollar has some serious downside risk. The nexus with the stock rally has been broken but it feels like the nexus with anything negative in terms of global growth and indeed domestic growth has been strengthened – as we highlight a while ago before the selloff the worm has turned for the Aussie.

Looking at the daily chart of the AUDUSD above there is little doubt that the Aussie is overdone to the downside at the moment but only as bad as the move to 0.9570 last June and not as aggressively oversold as when it hit around 0.94 in October 2011 or around 0.80 in May 2010. So we would still caution about trying to catch a falling knife and note the market is probably more like 2010 and less like 2011 and 2012 in terms over overall sentiment toward the Aussie Dollar.

0.94 is the key level to watch over the next few weeks and selling rallies is probably going to be the order of the period ahead.

Elsewhere in FX land the Euro made a low just below 1.28 and proof that you should always leave old trendlines on your charts its low was bang on the old uptrend line from 2012 Euro broke through late last year.

Longer term We think Euro is headed back to the 1.21 region because the worm has turned for the US dollar. As Morgan Stanley wrote over the weekend

There has been a significant shift in global currency market dynamics over the course of the past week, driven not only by the JPY, but increasingly by the USD. We have discussed recently the potential change in the status of USD, with the US increasingly being seen as an investment destination and the USD being used less as a funding currency.

This process has continued over the past week, with further strong data from the US leading to a renewed rise in US treasury yields. This rise in US yields now places the USD into the basket of yielding currencies, which suggest further support is likely to
build over the over medium term.

Yes this is the big change in FX markets over the last little while and while Euro rallies will occur and USD sell-offs can result the trend change is clear.

USDJPY traded higher again as well to 103.18 but is off at 1.0282 this morning. We are expecting a reaction from USDJPY lower from this resistance zone but it is elusive at the moment.

On Commodity markets Gold is down at $1361 and only around $40 above the recent lows and the gold aficionados might like to check out this Barrons story via BusinessInsider for a little bit of info/conspiracy about what went on. From where we sit only a break of the $1300/20 zone opens up further substantial downside – but we are watching this zone.

Data

Holidays in Switzerland, Germany and France for Whit day.

In Japan this morning we get the Leading and Coincident Economic indices before Italian Industrial orders and sales and the Chicago Fed index tonight in the US

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

Vantage FX | Aussie crashes, Gold falls as global growth stalls | 16 May 2013

May 17, 2013 By Leave a Comment

Data data everywhere and not a drop of growth.

We’ve gone with that as the opening sentence for the second day in a row to reinforce to our readers that the global economy is turning down again. We have noted recently that the pace of economic releases and their outcomes which were largely better than expected in the 10 weeks to the middle of March has largely reversed in the weeks subsequent and the outlook is souring.

Last night we saw jobless claims in the US jump to a six week high rising 30,000 to 360,000 while the Philly Fed manufacturing index plummeted from 1.3 last month to negative 5.2 in May and against expectations of a rise to 2.4. Housing starts were also lower than expected as was the CPI data, which balances out the bad news a little by reducing any pressure on the Fed to hurry to exit its unconventional monetary policy any time soon.

That is not to say that Fed officials aren’t contemplating a withdrawal or, as Richard Fisher opined yesterday in a speech, a taper in the program.

At the close the Dow finished at 15,233 down 0.28% on the day after it made a fresh intra day high at 15,302 earlier in the session. The S&P closed down 0.53% at 1,650 and the Nasdaq was 0.19% lower. In Europe the big markets of London, Frankfurt and paris less than 0.1% either side of flat. Stocks in Milan rose 0.29% while stocks in Madrid fell 0.47%.

Gold bugs won’t want to hear the news from Credit Suisse that they see the precious metal down at $1100 in a years time. As readers know we hold gold as nothing more than another market. We are neither gold bugs nor gold bears – we simply follow the price action and what out technical view tells us. But it worth noting that the Gold Bugs have recently changed tack to talk about the huge uptick in physical gold as a sign that gold must come back – even though the price is falling.

In simplistic terms this is naive in the extreme because the price is the price and whatever the physical demand the fact the price is falling says that that demand is being overwhelmed from selling from somewhere – even if its paper selling. But it would be disingenuous in the extreme to be bullish when the paper buyers are buying and evidence the price action that results as a sign of golds buggynesss and now when the paper buyers are liquidating to ignore them.

It is simply neither intellectually not tradingly honest.

The key reason for Credit Suisse’s view is that the lack of global inflation, indeed the fall that is still occurring  means that gold is an unnecessary hedge. We have  lot of sympathy with that and will be looking at global inflation in this week’s free subscriber newsletter due out tomorrow. If you would like to receive a copy in your inbox  please sign up here

Turning back to our current outlook and we’d say that on a very long term out look the recent lows are the key to gold’s immediate and long term future. We expect to see gold make a round trip to the recent lows at $1320 and expect there to be support there and down to $1300 initially. But there is a warning insofar as that the JimmyR moving average indicator we use has only just turned bearish so we still see further downside in time and would still be selling rallies.

Turning to the other big market mover the Aussie dollar briefly under 98 making a low of 0.9795 before “bouncing” to 0.9804 where it sits this morning. Yesterday I noted that because I was travelling I had cut positions but when I got to Brisbane I got short AUDJPY again and then switched that to short AUDUSD later in the day. So I am short that at the moment.

Part of the reason I am now short again is the big break of the weekly trendline and the 200 week moving average that occurred yesterday afternoon. Certainly we always respect channels and levels until they break and we had a target of 0.9857 in for a while now but the break of this channel opens the way for a move over many weeks to 0.9350.

Also if you are a fundamentalist the falling economic and inflation backdrop undermines the Aussie Dollar as a safe harbour and our own sinking economy just builds on that. If I look at our five key drivers we talk about that drive the Aussie they are negative as well.

  1. Interest rate differentials – closing, negative for the Aussie;
  2. Investor Sentiment – turned on growth, inflation and the Aussie, negative for the Aussie;
  3. Global Growth – Yuk, negative for the Aussie;
  4. USD – least ugly in currency land, negative for the Aussie; and
  5. Technicals – the chart above speaks for itself, negative for the Aussie

So I guess the message is the trend is your friend and catching falling knives is a dangerous strategy.

On other markets the Yen fought back again after the weak US data and we are of a mind to get short USDJPY somewhere soon, just waiting for the signal. Euro has to break 1.2840 which is the low for the past to days for it to kick lower.

On commodity markets crude and Dr Copper both rose, no doubt on the back of the slightly weaker US dollar after the data last night up 0.87% and 0.77% respectively. As noted Gold fell 0.67 but Silver has barely budged.

Data

Japanese Machinery orders, Chinese leading economic indicator today and then a fairly quiet data night for Europe and the US.

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

Vantage FX | Gold under pressure as Aussie Dollar holds support | 15 May 2013

May 16, 2013 By Leave a Comment

Data data everywhere and not a drop of growth.

Stocks kept keeping on overnight with both the Dow and the S&P touching new all times highs in trade before pulling back a little while stocks in Europe rallied even though we saw some very poor GDP data for the Eurozone.

Germany managed to print a moribund 0.1% growth rate in Q1 against the 0.3% expected. But at least Germany grew France slipped back into technical recession with a fall in GDP of 0.2%. I say technical because this is an economist or media definition of recession and we’d argue that if you ask the unemployed, the underemployed and shop and business owners in France they didn’t need an economist to tell them they are in recession – Main Street knows what Wall Street needs confirmation of.

Elsewhere in the Eurozone Finland, Cyprus, Italy, The Netherlands, Portugal and Greece all also saw growth fall and we already know that Spain is in real strife from last month’s release.

But you can’t keep a good bull market down and stocks in Europe continued to rise with the FTSE up 0.12%, the DAX up 0.27%, the CAC in Paris up 0.40% (go figure) while stocks in Milan and Madrid rose 1.03% and 1.28% respectively. Clearly stock traders are voting that QE is coming to Europe and clearly their views are shared by FX traders with the Euro under pressure.

Before we move onto FX markets it is worth noting that stocks in the US alos ignored some poor data with the print on the NY Empire Manufacturing Index of -1.43 very different and much weaker than the 4 that was expected of the 3.05 last month. But that didn’t stop stocks traders with the Dow finishing up 0.40%, the S&P up 0.52% and the Nasdaq up 0.27%.

Turning to FX markets it was another night of US dollar strength against the Euro with the single currency falling on the back of the weak growth to a low of 1.2842 a full 100 points below the high of the past 24 hours.

As we noted yesterday a break of 1.2872 opens up a return to the 1.2475 with 1.2741 the next stop.

Elsewhere GBP managed to reverse recent weakness as the outgoing BoE boss Mervyn King said that he could see a British recovery on the horizon and as the BoE revised away the recent economic weakness. As Gemma Godfrey said on Linkedin this morning – just how strong are his glasses? Perhaps he is using the special central banker rose coloured binoculars.

Turning to the Aussie it made a low last night of 0.9852 which is just below our 0.9857 target we have had for a while now. The big question of course is whether or not this is the level from which the Aussie can launch a rebound. It makes sense that it is although it is worth noting that oversold can stay oversold for a long time and the Yen’s rally from below 80 to the current level of 102.34 is a case in point.

So anyone trying to catch a falling knife has been warned.

Having said the above it might be time for a reversal of fortune in the Aussie back toward 0.9930 in the first instance and then 1.0005 if that gives way. I have squared up all positions now and am awaiting a fresh catalyst – equally I’m on the road and out of touch which is always a dangerous time to be trading.

In Japan today is a big day with GDP data to be released for Q1. The market is expecting a big pick up in growth to 0.7% qoq from last quarters 0.0% outcome. Year on Year growth is expected to rise to from the 0.2% last. No doubt if theses data print along these lines and if the structure is as the market is looking for then given the extended current nature of the USDJPY rally and the move into the super convergence of resistance overnight with the high of 102.76. before pulling back to 102.35 where it sits at the moment.

Gold continued its fall as expected breaking down through $1417 which was the level we highlighted to make a low of $1389 just shy of the $1385 we identified yesterday as the target if our level gave way. Whilesoever the markets are focused on this equity rally and the Fed’s goosing of stocks and ignoring the reality that is weak global growth gold’s place in investors portfolio’s is reduced and so the pressure on it remains. Equally though the US dollar’s hegemony in currency markets is returning and the European data last night just reinforces US dollar buying which is a natural downward pressure on gold and other USD denominated commodities and currencies.

As you can see in the chart above Gold looks like it is going to return to the recent lows. The rally failed in exactly the zone we suggested it would and the JimmyR trend indicator remains in a down trend and crucially, from the way we trade it, while gold managed to push back up through the fast moving average it could never break the slow moving average and thus we retain a bearish bias.

Elsewhere in commodity markets Dr Copper fell another 0.61%, crude had a huge reversal off early weakness closing at $94.23 Bbl after the EIA released the latest stock data which fell 624,000 Bbls against expectations of a rise of half a million. Wheat fell 2.43% possibly on news that buying in the next year is going to be significantly lower than the market had previously expected from India. Soy beans hardly moved and Corn was 0.31%.

Data

Following on from the data on growth overnight we see Japanese GDP this morning along with Chinese FDI and then Japanese IP before Eurozone and US CPI before jobless claims, housing starts, building permits and Philly Fed in the US.

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

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

May 15, 2013 By Leave a Comment

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

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

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

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

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

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

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

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

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

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

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

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

Data

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

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

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

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

May 14, 2013 By Leave a Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Data 

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

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

Vantage FX | 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 | 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 | 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: , , , , , , , ,
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