ASX breaks out and Aussie set to rally after RBA.

September 3, 2013

Recap

Labour Day in the US so that part of the night was fairly quiet but the preceding 16 hours were interesting insofar as they gave another glimpse into what continues to be a healing global economy. Yesterday’s HSBC Chinese manufacturing PMI printed 50.1 and then even though a number, or most, PMI’s in Europe actually missed expectations they were stronger than the previous month.

So stocks in Europe were ebullient and rallied strongly following Asia’a lead with some big rallies. The FTSE rose 1.45%, the DAX was 1.74%, the CAC and FTSEMIB were both up 1.84% while stocks in Madrid were 1.68% higher.

The ASX has broken higher and the ASX will print stronger this morning.

On FX Markets yesterday the Aussie (0.8976) got a big lift from the Chinese data over the weekend early doors and then kicked on with it once the HSBC PMI was out but also on the back of the huge rise in Building Approvals which are running now at a +28.3% annual rate. The high for the Aussie overnight was 0.9013 as traders clearly just pushed until they found the sellers and the Aussie sits mid range for the day.

Elsewhere USDJPY is up more than one big figure at 99.32 as the fear bid washes out of the Yen while Euro (1.3197) slipped back under 1.32 and GBP (1.5545) is mid range on the day.

On Commodity markets Gold was slammed in early Asian trade yesterday (breaking my heart for being to cautious) and fell into the support zone above $1370 before rallying back toward  the $1400 zone. I’m short but it has hardly moved for hours. Nymex crude slipped back as well falling 0.77% to $106.82 Bbl.

In other potentially market moving news the head of NATO and the French PM have both come out and said they have conclusive evidence that the Assad regime used Chemical Weapons. Assad continues to deny it and in an interview with Le Monde said that France and the West would face repercussions from an attack. France won’t act alone and tensions are going to be high in St Petersburg this week.

On the data front it is a big day for data with Retail sales in the UK, Australia’s current account and retail sales and then at 2.30 pm Eastern Standard time the RBA will release its decision after the monthly Board meeting. Chinese non-manufacturing PMI is out as is EU producer prices, Brazilian IP and the US catches up with the release of the Markit PMI and the ISM.

ASX breaking higher

I’m not overly long equities – just the base level 20% that I see as my default position. Some might call it my bearish position because it is uncommon to go 100% cash but this is as close to zero as I like to get usually. So I am missing out a little on the break out that is evident in the SPI at the moment as you can see in the chart below.

My new best friends at iQuant systems who produce some of the best technical analysis I have ever come across have a target now of 5236 for the SPI. I’m a little more bullish looking for a test of this years high at 5260 and maybe even 5300.

One note that shows the power of FXCopy is the positioning information that you can pick up on the site.  As you can see in this table the FX Copy Community is long Euro, Short Aussie, Long Nikkei, Short S&P 500, Long Gold and mega mega short the ASX via the SPI.

That could just put a further rocket under the SPI break out.

The reality however is that the SPI is going to be dragged higher by what happens overseas and by the gradually improving global back drop which is making it evident that our miners may not be investing as much as they have but if volumes and price stay up – well, happy days.

Watch out for the RBA at 2.30

For what feels like, and probably is, the third month in a row I am running short into the RBA announcement today. Like last month I reckon they are probably going to be even handed on the economy and say the Aussie dollar is too high and should ease back.

The question on my mind  is whether, like recent history, the market serves to ignore the focus on the Australian dollar in favour of the economy – we’ll know this afternoon and with retail sales in the run up at 11.30 and the Dun and Bradstreet report already out this morning painting a still moribund picture of the economy perhaps the market might focus on the dollar.

Realistically though I doubt it as the Aussie has just jumped 25 points on nothing in the past 10 minutes.

MMM…I look at teh charts and I think maybe I’m wrong and the Aussie is finally going to rally. Maybe a cent, maybe more.

Should be an interesting day, good hunting

Greg

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