Aussie and Stocks rally as USD in retreat

October 18, 2013

Stocks in the US did very well last night and the Dow even managed to shake off an IBM induced slide to finish close to home but it was the S&P and it’s new closing high that is the story of the day for stock traders. The S&P  at the end of trade was at 1733 up 11 points or 0.67%. It really did have to happen this way after the market held in so well in the face of a potential default and with liquidity conditions still so fluid and any chance of the Taper now likely shifted into 2014 it’s a bull market it seems. The Nasdaq was up 24 points and 0.61% while the Dow lagged, dragged down by IBM, with a fall of 2 points overnight.

Europe wasn’t so keen but the US did help induce a recovery from an early swoon with the FTSE finishing up 0.07% but the DAX, CAC and FTSE MIB (Milan) down 0.38%, 0.09% and 0.40% respectively. In Spain the IBEX rose 0.39%.

Closer to home the SPI 200 on the Sydney Futures Exchange is up 30 points this morning to 5305 bid. As I noted above for all the shenanigans in the US over the last few weeks the Markets took them in its stride with much more equanimity than we could have expected a couple of years ago.

So that being the case and with the resolution now behind us it is only earnings and very weak data that can probably knock the stock market and thus risk assets lower. That being the case being overly bearish, even prices still feel like they are fully valued is a dangerous strategy in the short term. Having said that thought the ASX, or at least the SPI 200 has not yet taken out the recent highs and seems like it might lag a little.

If it does take out the high expect big big very big resistance at 5439 which is the 61.8% retracement of the big fall from 2007 to 2009.

On Forex markets the US dollar didn’t fare near as well as stocks which at first blush might seem a conundrum but traders are clearly thinking thematically overnight in the sense that the Fed will be now on the back burner so it’s situation normal and the liquidity spigot is open. So if the Fed isn’t going to tighten nor withdraw it’s monetary stimulus any time soon selling dollars and buying Euros (1.3674, +1.03%), Pounds (1.6161, +1.34%), Swiss Francs (USDCHF 0.9021) and Aussie Dollars (0.9627, +0.81%). Interestingly – and also along the same theme, USDJOY fell 0.88% to 97.89 in what was a really bad night for the US dollar.

Which makes it easy to understand why and how the Aussie is ripping higher.  With the USD falling out of bed the Aussie was always going to rally and while it gave back a little bit of its recent gains against the Euro and the Pound the move outright in AUDUSD still looks like it has further room to push higher.

You really can see in the daily chart above the strong double bottom and the move retracement and break I have been talking about for a while now and the target remains 0.9770ish as discussed earlier this week which is also the 200 day moving average.

This will be big resistance when/if the Aussie gets there and even though the Aussie feels over done in the shorter time frames like the one hour charts the weekly as you see below continues to point higher.

On the chart above the MACD still suggests that further gains are on the cards and a move to 99 cents and the 200 week moving average is a real chance on a multi-week basis.

Commodities such as Gold and Silver also benefitted from the fall in the dollar with Gold up 2.96% to $1319 oz while Silver rose 2.73% to $21.88 oz. Once again this is a Fed liquidity move. Nymex Crude fell 1.56% to $100.69 and looks biased lower. Copper fell 2 cents to $3.28 lb while in the Ag pits corn was up 0.17%, wheat rose 0.66% and soybeans rose 1.29%.

On the data front the jobless claims fell 15 thousand to 358,000 which is a great number and also helps underpin the stock market rally and while the Philly Fed fell from last month’s print of 22.3 it still printed stronger than expected at 19.8 versus 15.0.

Looking to week’s end I’m not sure of the new schedule for all of the outstanding data fro the US so watch out for that – even if the data is likely to be discounted due to the shutdown and the impact of same on the economy. Today is a massive day for global markets however with the release of Chinese GDP at 1 pm this afternoon.

Have a great day and good hunting – and for all those caught in and around the fires in New South Wales – stay safe

Greg

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