Aussie and Gold trying to rally but struggling at present.

January 21, 2014

You could have snored your way through trade last night with all the action in Asia yesterday prior to and around the release of the Chinese GDP data which although no big surprise wasn’t as weak as the market was clearly fearing yesterday morning.

Once the baton was handed to Europe trade was dominated by company specific news with the surprise announcement by Deutsche bank of a loss for Q4 2013 hitting the stock hard and it ended the day down 5.4%.

At the close the DAX was down 0.28% while the FTSE was 0.11% higher and the CAC in Paris was down a little with losses of 0.1% and 0.28% respectively. In Milan stocks eeked out a 0.02% gain while Spanish stocks fell 0.11%.

In overnight trade on the Sydney Futures Exchange the SPI 200 contract fell 7 points  to 5249 bid. In the context of yesterday’s early weakness that is still a fairly solid performance and recovery.

Like stocks FX markets had the biggest part of their volatility early in trade yesterday and the Chinese data really turned around with early pressure which saw the Aussie dollar fall to a fresh 3 year low of 0.8756 before recovering to 0.8801 this morning.

Very interesting price action in the Aussie over the past 24 hours with a 3 year low at 0.8756 before the tentative recovery to 88 cents this morning.

Tentative is the best word because as you can see in the chart above after a big sell off like this and after the terrible employment data last week we’d have to see a move above 0.8835 and probably 0.8850 before you could be comfortable that it has turned – at least in the short time frame.

I think it will have a crack but longer term it looks like it is heading lower.

The Yen was also stronger prior to the number but it reversed course subsequently and sits at 104.17 this morning. The Euro had a better night and is back up at 1.3565 from the low yesterday at 1.3506. GBP sits at 1.6434 and the Swiss Franc is at 0.9091.

Even with the MLK holiday some commodity markets were open electronically with Nymex Crude down 0.69% at $93.72, Gold rose another $5.50 to $1257.20 while copper lost another cent to $3.37 lb. Bitcoin never sleeps and sits at $959 this morning.

Gold looks good and it looks like it is trying to build a base but we always respect trendlines until they break and yesterday in pre-data trade gold tried to get near the line but found the going tough.

There is a really interesting dynamic here that i think gold can benefit from.

It has nothing to do with gold’s fundamentals but more a rising sense that a decent pullback in stocks might be coming down the line and Gold will spike. Yesterday gold was up while stocks and the Aussie were down. As soon as the trend reversed gold did too.

Now, as my colleague from Business Insider US Matthew Boesler wrote – stocks haven’t had a decent sell off for 408 days (you can read his piece here) – when it comes gold will benefit.

When I see the chart below of the monthly S&P 500 I can’t help but want to buy gold and stock puts.

On the data front it is a fairly quiet 24 hours with ZEW economic sentiment survey the only major release in Europe while the Redbook index will be released in the US.

Have a great day and good hunting

Greg

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