Currency traders catch up to the US economic strength – Sterling tanks

August 20, 2014

A big night if you were long Sterling as the weak CPI and PPI data (see below) hit longs right between the eyes taking GBP down more than 100 points from the highs.

On the dailies you might be able to argue that GBP’s sell off is a little overdone even though it has just had a range break. But on a weekly time frame it looks like further downside will open up in time.

Now of course Sterling is just one of a raft of global assets traders can trade but with a 5 big figure sell off it highlights the risk in extrapolating strength in markets to infinity.

Indeed while I know that I am still banging the drum about growing market instability even when we see stocks rally and Apple make a new all-time high for the first time in two years when I see stories where traders start bragging about how easy it is to buy the dip – well you know, maybe not all the time or next time.

Anyway at the close the Dow was up 81 points to 16,960 for a gain of 0.48%. The Nasdaq was 0.44% higher and the S&P rose 10 or 0.52% to 1,982.

Of note was the was the big surge in Housing starts surge to a 1,093,000 unit rate in July a 15.7% jump.

In Europe the big news was the 1.6% print in UK CPI which was below the 1.8% year on year total. This was after a 0.3% fall in CPI for the month and the associated fall in PPI. Sterling was hit hard and the FTSE rose 0.56% to 6,779. The DAX rose 0.96% to 9,334 while the CAC was 0.55% higher in Paris. In Milan stocks were very quiet while the IBEX 35 in Madrid rose 0.32%.

Locally the impact on the ASX 200 is muted it seems because of BHP specific features which have seen the Big Australian lose around 4% in overnight offshore trade. The SPI 200 futures as a result have bucked the offshore ebullience with the September contract down 8 points to 5574.

Asian stocks were universally positive yesterday with the Nikkei up 0.83%, the hang Seng up 0.67% while stocks in Shanghai rose 0.25%.

On currency markets the data in the US helped the US dollar hit its highest level in almost a year with Euro falling around 40 points from the high to 1.3321 while USDJPY surged back toward 103 sitting at the overnight high this morning of 102.92. The Aussie dollar was caught in the US dollar’s tractor beam falling 45 points off the high to 0.9301 this morning.

The Aussie is still in the range or box and its still expensive to short so it needs a big catalyst to tank.

On commodity markets September 62% Fe iron ore futures were down 0.08% to $92.25 while Newcastle coal for the same date fell 60 cents to $69.70.

The big news on commodities though was the big fall in Nymex crude which dipped 1.97% to $94.51 a barrel. Gold sits at $1,94 with silver at $19.43 an ounce. Copper remains at $3.10 a pound while the Ags had a better night with corn up 0.22% while wheat rose 0.87%. Soybeans however dipped 0.47%.

On the data front today RBA Governor Glenn Stevens addresses the the House of Representatives Standing Committee on Economics from 9.30 this morning. His opening statement will hit hte screens around that time and then he and his team will take questions after that.

day we get Japanese trade data and tonight we get PPI in Germany, the Bank of England minutes from their last meeting and the vote count which in the wake of last nights move in Sterling are doubly important for currency traders and then later on the FOMC minutes as well. And of course Jackson Hole is on.

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