Aussie bulls aren’t brave or strong enough to push through resistance

June 24, 2014

There was a perfect set up yesterday for a short squeeze through the 0.9460 “pain point” in the AUDUSD but whether unwilling or unable the Aussie dollar bulls just couldn’t get it out of the 0.9440’s.

What do we learn from that?

Probably that the market is still in a low volatility period and with more eyes on the World cup than Bloomberg or MT4 terminals it’s all about intra-day not inter-day moves. Equally though what I take away from the price action is that the Aussie is strongly tied up in stock market moves and needs an overall tone of market ebullience to kick it out of the range.

Darvasian Box – trade the range until it breaks. Then be a Turtle!

Turning now to the key driver of the Aussie’s, so far, aborted rally, we see a really interesting data mix over the past 24 hours with Chinese and US flash PMI suggesting strength and Europe – well Europe is Europe. Yesterday in a big surprise after a really solid flash Chinese PMI which ripped higher to 50.8 the Hang, Seng and Shanghai composite fell and it was a trend that followed around the globe with European shares lower and US shares basically flat.European flash PMI’s were mixed with Germany (52.4) slightly undershooting expectations while France looks appalling as it struggles at 47.8 DOWN from 49.6 last month. The EU itself undershoot as well printing 51.9 from 53.4 last.

China is looking solid and there is no sign of a hard landing which will help the Aussie and has helped copper. The Citibank Economic surprise index which shows just how starkly the recent improvement in data has been in China – worth filing in the memory bank.

In the US however Markit manufacturing PMI ripped higher to 57.5 from 56.4 and existing home sales were up a very strong 4.9% in May which should assuage some of Fed Chair Janet Yellen’s fear about the housing market.

In the end though after a small rangey day the Dow finished off 0.06% at 16,937, the Nasdaq rose 0.02% to 4,369 while the S&P was virtually unchanged down 0.1% at 1,963.

In Europe stocks took the data more seriously though with the FTSE down 0.35% to 6,801, the DAX fell 0.66% to 9,921 and the CAC in PAris dropped 0.56% to 4,516. In Milan the weakness in Italian stocks continued with the FTSE MIB down 1.33% while in Madrid stocks fell 0.33%.

Locally stocks were 0.6% higher yesterday on a combination of iron ore miner strength after the solid rise in prices since last weeks low combined with the strong Chinese flash PMI. Overnight though the September SPI 200 futures are up just 1 point to 5,409.

Watch the miners though if you are trading the SPI because iron ore looks like it has broken a big level in the past few days and smashed its down trend. Copper is bouncing strongly as well.

As noted the Aussie, together with its commodity bloc cousins the Kiwi and the Loonie bounced on the stronger than expected Chinese PMI but the Aussie couldn’t go on with it overnight and slipped a bit from the highs around 0.9440 to sit at 0.9423 this morning. Otherwise it was a fairly calm market even though the Euro rising seems incongruous given data and bond moves – but the market is the market and it sits at 1.3602. Sterling is at 1.7023 also higher while USDJPY is at 101.92.

On commodity markets iron ore’s rally continues to recover from last week’s lows below $90 tonne with another 75 cent gain overnight to $93.75. Coal on the other hand slipped again down 60 cents to $70.50 tonne. Nymex crude for June backed off a little and sits at $106.01 Bbl but copper fairly loved the Chinese data and is back at $3.15, up 3 cents lb. Gold is up a little at $1,316 oz while silver is at $20.86. On the Ags prices were mixed with corn down 1.93% while wheat was 0.94% lower and soybeans up 0.64%.

It’s a virtual data free zone in Asia today with only the Chinese leading index out before we head to Europe for the German IFO business survey. Inflation report is out in the UK which will be watched closely for signs of a hike interest rates but then during the US session there is plenty to focus on including a speech by Philly Fed President Plosser, house prices including the Case Shiller index, new home sales and the Richmond Fed manufacturing index.

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