Aussie and stocks weighed down by fear of Taper

September 23, 2013

The Australian dollar is under pressure this  morning after the risk off theme of the last two days trade of the week and after the market misinterpreted I reckon comments from St Louis Fed President James Bullard that the decision by the FOMC last week was a “close decision” and that “October is a live meeting”.

Bullard is a bull at the moment when it comes to the Fed’s QE program and correctly, in my view, believes it is the flow of QE not the stock of QE that is the primary driver of the impact on the US economy. That means he wants to keep up the bond buying. The market is the market but for mine Bullard has been thin sliced and misinterpreted.

Not that that mattered though with the reporting focusing on “close” and “live” more than the realistic dovishness and open mind that Bullard showed so at the close Stocks in the US were under pressure with the Dow losing 186 points or 1.19%, the Nasdaq lost only 0.38% and the S&P 500 lost 0.72% or 12 points. It did however close the week above 1700!.

In Europe the FTSE was lower by 0.44%, the DAX off 0.21% and the CAC hardly changed at -0.05%. Milanese stocks lost 0.49% while stocks in Madrid rose 0.20%. It will be interesting to see how the peripheral equity markets go tonight and how the Euro goes this week after what looks like a resounding Yes vote for German Chancellor Merkel’s handling of the Euro Crisis at the German election on the weekend. She has swept all before her it would seem.

On Forex markets though the US dollar got some of its mojo back knocking the Aussie dollar (0.9391) back under trendline support, GBP (1.6003) lower while the Euro (1.3516) and Yen (99.21) proved more resilient after some early weakness. The US dollar starts the week a little stronger and the Aussie looks a little vulnerable.

Aussie Dollar trying to find the buyers

The Aussie dollar likewise came under pressure on Friday – it really is back to the risk on risk off meme – and it will probably come under further pressure this morning but all we need is a solid HSBC Chinese PMI at 11.45 am this morning and it is off to the races once again. Of course the reverse is also true. Last month was 50.1 so anything above will be positive.

Aussie is right on trendline support on the dailies. It traded under during the day in Europe and the US session and Reuters says its down further this morning which is to be expected. The fast moving average is not until 0.9287 on the dailies and just 5 points above the 38.2% retracement  level of the big move which comes in at 0.9282 at present.

We thought it was headed higher last week but the Aussie turned aroundvery quickly but we remain bullish longer term based on the weekly charts so are buyers of dips.

The ASX and S&P looking for support

Markets often make new highs, fret about the move and then pull back. On the back of the stronger data on Thursday last week and then James Bullard’s comments on Friday their was a reversal off the highs that accompanied the Fed’s decision to wait at least another month until the Taper but more likely until at least December.

As Bullard said this is going to be data dependant but for traders technicals can give and insight and both the ASX and S&P 500 look like they want to pullback to find support.

S&P 500

The daily chart above for the S&P 500 points to a test of our fast moving average at 1685 and if that gives way 1674. If the latter gives way it is likely the S&P is heading lower.

But it remains in an uptrend but only a brreak of last week’s highs will get us excited.

SPI 200

The fast moving average for the SPI200 comes in at 5213 and then support is 5196 from the trendline. The slow moving average comes in at 5152 and should be strong otherwise lower levels beckon. As for the S&P 500 on the highs.

On commodity markets gold had a shocker falling more than $40 oz in what seemed like an awful and relentless last 12 hours of trade for the week when the sellers just kept coming. Nymex crude fell 1.11% to $104.70, Copper was at $3.31 lb while the Ags all lost around 1.80% respectively

On the data front today we get the start of the next round of global Markit PMI data with the HSBC Chinese PMI at 11.45am Eastern Standard Time we also have Singaporean, French, German, EU, US and a raft of other manufacturing PMI over the next 24 hours as well as the Chicago Fed’s national Activity index in the US.

Japan is out today so it could be thin early.

Have a great day and good hunting

Greg

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