Big levels beckon in USDJPY and SPI 200, Aussie drifting lower still

November 13, 2013

Kind of a weird night overnight with the taper front and centre in some markets but in others it seemed not to matter.

Key for me Dennis Lockhart, the Atlanta Fed Governor, and noted dove, was talking and said that he thought inflation was too low but that the Taper might still be discussed next month. Indeed there was a story to that effect on BI US overnight which is worth a look because even though Lockhart said the data will be scratchy until at least December because of the Government Shutdown that very same data has been quite strong.

But the big moves I’ve been watching over the past couple of days as a result of taper talk have been USDJPY and the Nikkei which closed 2.24% higher yesterday. The Yen leads the Nikkei and NOT the other way around as some seem to think because the weaker yen (higher USDJPY) makes corporate Japan, what’s left of it with anything attractive to sell, cheaper in US dollars and other currencies. 100 is a huge level and the high overnight of 99.79 is not too far below.

As noted the USDJPY is approaching very solid resistance which is HUGE at 100.

Now as a declaration it is worth noting that I have a long term goal – yes very long term – of USDJPY at 150 and while it might not yet be the time for the decisive break as more information about the US recovery and the failings of Abenomics come out there is little risk of USDJPY falling materially or sustainable. But for the moment watch 100.

Elsewhere in Gloabl FX land the Aussie drift lower continued with a low of 0.9268 but it is back at 93 cents this morning. What’s driving it is pretty easy to understand – US data has been stronger the port in the storm that was Aussie is not needed if the US is doing well so traders transition out of Aussie and back into US dollars. It’s not a safe haven but increasingly the Aussie is becoming a safe harbour which is something the RBA is going to have to get used to and learn how to mitigate – perhaps stand in the market and sell into strength?

The question for Aussie traders is whether this is going to be a relentless fall back below 90 cents or it is going to find some support around these levels.

My usual trading system and approach suggests the bottom is not yet in and while I might miss it I can’t see it yet. Which means we have achieved the target we set last week and while I expect a bit of a bounce and aren’t getting too bearish per se a break of 50 on 92 cents would turn the outlook quite bearish. So I guess take some profits, perhaps square up or even buy some in front of this level but watch it closely.

Looking at the Euro which rallied to a high of 1.3456 around 100 points above the low which doesn’t make any sense given the low CPI (1.2%) and accelerating deflation in the PPI (-2.7%) in Germany. That is unless you look to the EURGBP rate which rallied hard as GBP (1.5890) was slammed on the lower than expected CPI which fell to 2.2%.

Turning back to stocks and it was a pretty quite night reinforcing the overhead technical (huge) resistance in the S&P 500 which closed down 4 points or just 0.22% but is still struggling for further topside impetus. On the Dow the market was similarly quite and the index is down 0.20% at 15,751 and the Nasdaq was unchanged. There was some disappointing data in the sea of stronger outturns recently with the NFIB Business optimism index falling from 93.9 to 91.6 in October which undershot expectations by around 2 full points.

Across the Atlantic the FTSE was largely unchanged at 6,727 down just 1 point, the DAX fell 0.35% to 9,076, the CAC fell 0.61% to 4,264 while in Milan and Madrid stocks fell 0.54% and 0.83% respectively.

Closer to home on the Sydney Futures Exchange the SPI 200 contract is down 18 points to 5393 bid and looking liek it has some serious downside coming soon – not sure when because it is in a nice little box but the downside seems to beckon eventually.

SPI 200 is about to break lower

I don’t often trade  the SPI 200 outright but at present I think there is a great trade here in selling with a stop a decent way above the recent highs and the target is 5068 so its a great risk reward trade off.

On commodity markets Bitcoin looks like it has made a double top and who would own it now that we have had one repository hacked a couple of weeks back and then the news broke over night that a Chinese exchange holding $4.1 billion has disappeared. It sits at 367 at the moment.

Elsewhere Crude fell 2.13% to $93.11 Bbl, gold fell heavily into the $1260’s and sits at $1267 at the moment down 1.1%, silver lost 1.53% to $21.37 and intriguingly copper lost another 3 cents to $3.22 – watch for a deeper break if $3.20. Corn fell 0.69%, wheat was off 0.15% and soybeans rose.

On the data front today the Westpac Consumer Confidence is out in Australia but before that there is likely to be some interest in the RBNZ’s Financial Stability Report and what they say on housing and the Australian Majors place in the Kiwi housing market. In the UK we get the unemployment rate but much more important is the bank of England Inflation report and a speech from BoE Governor Carney. German Bundesbank President Weidmann is also talking but there is nothing in the US of note.

Have a great day and good hunting

Greg

 

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