Aussie looking for support or is the rally over? Stocks pressured too.

October 24, 2013

The sell off in Asian stocks didn’t get confirmation from either US or European markets but it doesn’t make the big turn around in the Aussie dollar or the SPI 200.

Yesterday of course as the Aussie was selling off at the same time the Nikkei sold off, USDJPY fell heavily and Shanghai stocks markets went south. The catalyst of course was the short spike in Chinese interest rates as the Central Bank failed to inject cash for the second day in a row and the news that Chinese banks were starting to increase writeoffs for property.

Realistically it seems like more of a storm in a tea cup than the start of a Chinese Slowdown or a collapse in the Chinese banking system. Indeed some argue, and I agree, that if Chinese banks are now in a position to really write down dodgy assets then the banking system is in good shape to weather the storm.

So no surprise there wasn’t a lot of follow through selling in the US where the Dow closed down 55 points or 0.35%, the Nasdaq was 0.57% lower and the S&P fell 9 points or 0.49% to 1746.

In Europe the FTSE too resisted the Asian carnage only falling 0.32%, the DAX fell 0.31%, CAC dropped 0.8%, Spain fell 1.85% even though the central Bank reported it dragged itself out of recession with 0.1% growth. In Italy Silvio Berlusconi has been charged with bribery of a Senator which lead to the fall of a previous Prodi Government that was then followed by elections which Berlusconi won. This could be the one that gets him and stocks in Milan fell 1.85%.

On the Sydney Futures Exchange there was a small rise of 4 points in the December contract to 5348 bid.

Looking technically at the SPI 200 contract you can see from my Vantage FX platform that yesterday we saw a higher high, just, and then lower low than the previous day for an all engulfing bearish day.

Resistance is now yesterdays high of  5395 and support looks like the fast moving average in the short term which comes in at 5275 on the dailies.

On Forex markets amongst the Majors it was the Aussie (0.9624, -0.86% and 130 points of the 0.9755 high) and the Yen (USDJPY, 97.31 -0.83%) that were the big movers with the Euro (1.3780) largely unchanged and Sterling (1.6170) down a little. Elsewhere USDCAD rose 0.96% to 1.0383 after the BoC removed the reference to higher rates in its communique after its monthly meeting.

Yesterday I tweeted that the Aussie had hit the 200 day moving average but even though that was our target and expected to be important resistance, just like it has been support – again – in USDJPY, I didn’t expect the sort of sell off we saw in the afternoon. Essentially the sell off shows how vulnerable the market as but equally that these big structural widely watch moving averages and levels are an important piece of the armoury.

But where to now?

The daily candle is ugly, very ugly. Higher high, lower low off the 200 day moving average and all engulfing – Yuk just yuk.

Nut a pullback was inevitable once the Aussie hit the zone and my point yesterday with my tweet of not getting caught “rhetorically bearish” is to watch the market not your biases. The corollary of course is a rejection at the 200 day moving average is still a rejection.

The target for the moment is the trendline and the fast moving average which comes in at 0.9555/65 today on the dailies. ).9604 low last night was dead on support so this remains the short term level to watch.

A break of 0.9550 would turn the outlook.

Looking at USDJPY the chart below tells the story. The USDJPY found support again at the 200 day moving average over the past  24 hours but the key level for this asset is probably the trendline for the wedge that USDJPY is in at the moment and which comes in at 96.93.

USDJPY could deliver a pretty good break out trade sometime soon – I’ll be watching this space.

On Commodities Nymex crude was lower again down 1.29% to $97.03 Bbl, Gold fell $8.60 to $1331 oz, Silver fell back to $22.55 but the big mover was Copper which dropped 6 cents a pound to $3.26 for a fall of almost 2%. On the Ags corn was 0.91% lower, wheat rose 0.14% and soybeans were 0.56%.

On the data front New Zealand releases trade data, we get details of foreign investment in Japan and very importantly in context of yesterday’s Asian moves the preliminary estimate of the HSBC manufacturing PMI. RBA Deputy Governor on investment in the Australian economy which will be interesting.

Tonight we get a raft of preliminary Markit PMI’s for Europe, jobless claims and new home sales in the US and BoE Governor Carney speaks around 4 in the morning EDT.

Have a great day and good hunting

Greg

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