Aussie finds buyers as markets await the Fed

September 18, 2013

Thin and Whippy are likely the order of the day today now that it is finally Taper Time with the FOMC having begun its 2 day meeting with an announcement due at 4am Sydney time tomorrow. But while there was some US dollar selling overnight stocks don’t care in the least with the S&P 500 up 0.44% at 1705, the Nasdaq up 0.76% and the Dow was 0.23% higher. The big stock specific news was the announcement by Microsoft that it would increase its dividend by 22% and a $40 billion share buyback.

In Europe stocks were lower from 5 year highs on the Continent with the FTSE down 0.8% as the UK Government sold a stake in Lloyds. In Germany the DAX fell 0.19% pressured a little by auto sales, the CAC was 0.15% lower while stocks in Milan rose 0.11% and stocks in Madrid fell 0.08%.

On Global FX markets the Euro (1.3356) was up on the back of the better than expected ZEW economic survey printed 49.6 from 42.0 in August, significantly above the 46.0 consensus forecast. GBP (1.5907) and Yen (USDJPY, 99.13) were little changed.

But the Aussie has its mojo back low of 0.9284 but a high of 0.9366 currently 0.9354 – this is a break that will propel it higher and position squaring is likely if the Aussie can hold these levels for a few more hours.

Buyers coming for the Aussie Dollar

The RBA minutes were exactly the catalyst to fill some of the gap that we saw Monday morning that the Aussie needed to go higher. While the low was only into the 0.9280’s not the 0.9240’s that would have perfectly filled the gap and while only a move above 0.9390 will confirm beyond a reasonable doubt that the gap is filled the reality is that the buyers are becoming more emboldened with the Aussie even though the Taper is on the cards as soon as tonight.

It is so easy to understand why the buyers are back for the Aussie and Synchronised growth is real if the up tick in the Baltic Dry index is any indication.

It’s a long way from the pre-crisis heights but up strongly recently.

But  along with improving data in the developed economies it really adds a bid under the Aussie Dollar.

What we have is a convergence of technicals and fundamentals which are the opposite of what knocked the Aussie lower a few months back and as long  as the AUD holds above 0.9230 then I am confident that it is headed to 0.95/96 cent region.

S&P 500 pre-taper thoughts

It is a very interesting juncture for the S&P 500 to be so close to all time highs at a time when the market widely expects the Fed to start to withdraw some of its unconventional stimulus. It is a mark of the success of the communication policy of Ben Bernanke and his colleagues that we are in this situation with markets fairly sanguine about this initial step.

So the Fed is unlikely to want to do anything to derail this renewed acceptance of the path of the Taper. Equally however they won’t want to see a new Equity bubble grow in US stocks so what they say tomorrow morning is going to be watched very closely.

Technically we are in uncharted waters as you can see in the chart below -but the uptrend and the recent test remain clear as well. 1750 seems a reasonable target for the S&P 500 to shoot at if the Fed minds its words carefully

On Commodity markets Brent and Nymex fell on continued relaxation of Syrian Tensions with Nymex Crude down 1.21% to $105.30, Gold is off 0.64% to $1310.20 while Copper is flat at $3.23 lb. Ags were quite for a change moving around 0.5%.

On the data front not much matters till 4 am Eastern Australian time tomorrow morning when the FOMC announces its decision but that could make thing a bit thin and whippy today. Of note however is the Current account data in New Zealand, Leading Indicators in Australia, Chinese home sales and then tonight Bank of England minutes, Construction output in the EU and then Building permits in the US.

Have a great day and good hunting

Greg

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