A weak night for the Aussie and US Dollars as Gold tests resistance

January 24, 2014

Ugly, a very ugly night which suggests that prices and sentiment are stretched and that traders are hanging on just in case they miss a further rally rather than because they are convinced prices are going higher. So there was a heap of red ink across global stock and currency markets.

The catalyst was the release of the weaker than expected Chinese PMI yesterday which suggested manufacturing in the worlds second biggest economy is contracting again. Equally overnight the release of the Markit PMI in the US (53.7 from 55 expected and last) gave the sellers the upper hand.

So we have ended up with a a huge risk off night with currencies hit, bonds rallying and gold trying, ever so hard, to get through trendline resistance.

Interesting level in gold with the big 2% move overnight to $1264 driving it to a test of the downtrend line that has been in place since early 2013.

It’s exactly the sort of price action I have been talking about here and on my TV show gold and VIX longs might reward when the markets go off.

The base building continues and while it hasn’t broken yet a rally of $50-$100 oz is in the offing in coming weeks.

At the close the Dow has recovered from earlier loses of more than 200 points to sit at 16,198 down 1.07% or 176 points. The Nasdaq is off 0.59% and the S&P 500 is down 17 points or 0.91% to 1,829.

It was a similar story in Europe with the FTSE down 0.78%, the DAX off 0.92% and the CAC down 1.02%. In Milan stocks lost 0.72% and Madrid’s outperformance in 2014 continues with a loss of just 0.38%.

On the local market the pressure we saw in trade yesterday continued overnight with BHP under pressure in London and the March SPI 200 contract 33 points lower to 5,193 bid.

On Forex markets there was carnage in some emerging market currencies especially with the Argentinean Peso getting whacked after the central bank stopped intervening to support it. It wasn’t much better fo the Aussie dollar really which traded down to a 3.5 year low of 0.8730 just above the bottom of the big downtrend the Aussie has been in fr a couple of years now.

The Aussie is really under the pump at the moment and traded down to a low of 0.8730 overnight. The question is whether or not the bottom of the trend channel can prove to be the level from which it can mount a rally or not.

You can see that I have also added a green down channel which seems to summarise recent price action a little better than the broader channel, particularly if you view it on a daily basis.

Unsurprisingly this view of the Aussie points lower and accords with my previous articulated target of 80/81 cents eventually.

But just because the Aussie lost ground against the US dollar doesn’t mean that the US dollar was stronger. In fact it has lost a lot of ground against the Yen which rallied 1.25% driving USDJPY down to 103.19.

Risk off usually means a stronger Yen and weaker USDJPY and that is what we saw overnight.

As you can see USDJPY is testing trendline support but lets give that the benefit of th doubt for now and not call a break unless USDJPY trades below the recent low of 102.77.

The Euro also marched higher, no doubt on the back of better German manufacturing PMI (56.3 versus 54.6 expected) rising 1.06% to 1.3689. The USD lost 1.53% against the Swiss Franc and 0.24% against the Pound which sits at 1.6614.

On commodity markets Crude rallied 0.67% to $97.38 Bbl, Copper was slammed by the weak Chineses data falling 6 cents a lb to $3.32. The Ags were mixed again with Corn and Wheat up 0.65% and 1.56% respectively while soybeans fell 0.20%. Bitcoin sits at $952.

On the data this pre-holiday trading day in Australia is likely to be fraught early and then settle down around lunch time with nothing material to be released in our time zone. Tonight the key is a speech by BoE Governor Carney along with Canadian CPI.

Have a great day and good hunting and enjoy the Austalia Day holiday – I’ll be back on Tuesday.

Cheers

Greg

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