Aussie and Stocks roar as US dollar collapses on no Taper

September 19, 2013

Well that was a surprise and markets reacted accordingly to just 19 words  in the FOMC statement that ignited a collapse in the US dollar a stock market rally to new highs, a recovery in gold which had looked tenuous and a bounce in the Aussie dollar that has it at its highest levels in 3 months and seriously undermining the RBA’s desire for it to weaken.

Those words – “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

At the close the Dow has hit a new all time high of 15710 and closed at 15677 up 0.95%, the Nasdaq is up 1.02%, and the S&P 500 is now well through the 1700 level reaching a high of 1729 before closing up 21 points for a gain of 1.25%. Europe closed stronger but missed this rally and will open with gusto this afternoon.

If you are a SPI trader the moves overnight (in any market really) showed you the value of stop losses and established entry levels with the  SPI200 trading on the Sydney Futures Exchange overnight saw a rise of 59 points which augurs well for trade today as does renewed hopes of global growth on the back of the extended taper.

On FX markets the decision not to taper saw the US dollar collapse from a dollar index value of 81.22 to 80.29. The Euro (1.3491) soared from the day’s low at 1.3337 with the Pound (1.6100) rallying more than 1.25%. USDJPY collapsed from 100 points from 99.33 to sit at 98.13 but it was the Aussie dollar with the turbochargers burning rising to 0.9526 its highest level in exactly 3 months at one point before dropping back a little to sit at 0.9513 now. Positioning is likely to drive it higher still.

Aussie Dollar roars

The Aussie dollar roared higher overnight gaining the most of the major traded Currency pairs as the perfect storm of technicals and renewed global growth converged with teh Fed’s decision and the US dollar’s collapse overnight.

There is a lot of short term short positions that will have or are being squared up on this rally and there is likely to be automatic buy orders entering the market as well.

Equally with such a decent bounce off the lows the buyers will be more inclined to buy dips, which will inevitably come, when they come.

So lets look at how the Aussie is set up going forward and from a bigger picture point of view.

Our 5 drivers, growth, interest rates, investor sentiment, USD and technicals are all  ore positive for the Aussie now than they have been since April and May this year. So lets focus on the technicals today.

Weekly Chart

Everything in this chart accords with a higher AUD and this is currently only a garden variety 38.2% Fibonacci retracement.

  • Bounce off the bottom of the trend channel
  • Rounded bottom
  • MACD Histogram reducing
  • Broken fast ma and testing slow ma and the 38.2% retracement level at 0.9515

So the target is now the 50% retracement at 97 cents on the weekly charts – but remember its still in a down trend at the moment.

Daily Charts

Starting to get a little overcooked but you can see a nice double bottom and the trend using the daily moving averages is up.

Support now 0.9340 which is trendline and then 0.9280 which is the 38.2% retracement of the rally.

On Commodity markets Gold had a very big night trading down to a low of $1290 oz. but it has rallied more than 70 dollars off that low to $1360 this morning. Nymex crude bounced with the US dollar weakness up 2.52% to $108.08 Bbl with Copper up a similar amount to $3.31 lb. The Ags were quite up around half a percent each.

On the data front jobless claims tonight will be big as always but before that we get New Zealand GDP for Q2, Japanese Trade data and a speech from BoJ Governor Kuroda, The RBA Bulletin and FX transactions and then UK retail sales. In the US as well as jobless claims there will be data on existing home sales and the Philly Fed manufacturing survey.

Good Luck and good hunting

Greg

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