Aussie dollar soars after RBA own goal, Stocks take a breather and the Yen loses ground

February 5, 2014

It’s no surprise that with the big moves the previous two nights, which took a lot of markets outside the Bolly bands (a signal for at least a pause and often a retracement), that stocks recovered a little of the previous days losses in US trade overnight.

Clearly there was bottom picking – which if you are an Elliott wave aficionado is simply a natural  wave one reaction, – but equally the release of less bad data in terms of US factory orders (-1.5%) and a decent New York ISM (64.4) saw the bearishness that seemed all pervasive just 24 hours previously abated.

At the close the Dow is up 72 points or 0.47% to 15,445. The Nasdaq is up 0.88% and the S&P has recaptured 13 points or 0.79% and sits at 1,755.

I’m not getting bullish the S&P unless it gets back above 1771 in MT4 terms as this chart says it all.

We’ve had a break – we might see a retest of the break but until and unless it breaks back inside the bias is lower.

Europe really is a crook timezone to trade in so it was still reacting to the acute weakness in Asia yesterday when the US markets opened higher which helped drag stock markets off their lows. The FTSE fell 0.26%, the DAX fell 0.64% while stocks in Paris, Milan and Madrid all rose 0.23%, 0.60% and 0.29% respectively.

Locally on the ASX Futures market overnight the March SPI 200 contract is down 10 points to 5040 bid.

The ASX 200 looks weak but might rally. Part of the reason I also tweeted yesterday that I thought stocks might rally was because so many markets (like the S&P 500 above) had slipped outside the bottom of the bolly bands. The ASX was one of these and while its down overnight it might find some support today.

A close below 505 would signal a big move lower.

On global FX markets the Aussie was the standout rising 2.06% to 0.8932 this morning which is more than 200 points above yesterday’s low of 0.8728 on the back of an apparent change in stance from the RBA yesterday.

Indeed it looks like one of the great own goals of modern day central banking – almost as good as the Turkish Central bank’s big rate hike last week – the RBA changed it’s language enough to ignite a huge 2% rally in the Aussie dollar but tried to assuage this thought process by saying that the “exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy.”

Implicit in this statement is that if it rallies from where it was yesterday – 0.8750ish – then the growth pattern deteriorates. So our friends at Martin Place will not be very pleased.

Interestingly they have an opportunity to remedy this misunderstanding – if that’s what it is on Friday with the release of the quarterly Statement on Monetary Policy.

Turning to the technicals and I proved that sometimes not focussing exclusively on trading and writing is a stupid way to go and can lead you to trade that you never should have taken.

As you can see in this tweet I went against my usual process which is to use my system on daily bars and tried an intraday trade when it was against the bigger picture – that is just stupid. So please learn from my stupid example.

Anyway to the technicals – the dailies and weeklies suggest the Aussie should rise but the 1 hour charts are looking for a pullback today toward 89 cents and the 4 hour charts are looking overcooked as well.

Elsewhere the better tone in markets saw USDJPY rally 0.63% to 101.62 while the Turkish Lira rallied to 2.24 against the US dollar. GBP and Euro were fairly quiet and sit at 1.6320 and 1.3515.

On Commodities, Gold slipped back a little to $1,255.70 for a small loss of 0.37%. Nymex crude rose 0.99% to $97.38 while Dr Copper rallied 2 cents to $3.22 lb. On the Ags corn bounced 1.32%, wheat roared 3.95% higher suggesting a turn in the protracted bearishness in the grains while soybeans were 1.49% higher. Bitcoin sits around $930 basically unchanged and much less volatile than has been the case last year.

On the data front today Kiwi employment data is out and the AiG PSI in Australia. Indonesian GDP will be interesting and we also have a raft of Markit Services PMI’s tonight in Europe and ISM non-manufacturing in the US. Also out are EU retail sales and the ADP employment report in the US will be watched closely for a guide to non-farms on Friday.

Have a great day, don’t take the tin hat off yet, and good hunting.

Don’t forget you can follow me on Twitter @gregorymckenna

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