Euro down, Aussie and Gold Up in still thin trading

January 6, 2014

Welcome back to 2014 – here is to a successful and profitable year to all Vantage FX clients.

On Forex markets there was a little bit of wild and crazy thin market trading over the Christmas/New Year period with Euro making a multi month high at 1.3893 just after Christmas before getting side slammed by a Goldman Sachs report saying fair value was something more like 1.32. God was also volatile retesting the years lows and copper rallied hard along with crude oil which traded above $100 Bbl before dropping $6 a Bbl in the following days trade.

Likewise stocks made a new high last week with the S&P 500 hitting 1843 in Futures terms but it’s off a little more than 20 points at 1820 (physical 1831) on Friday night where it seems that the weaker than expected Chinese manufacturing PMI’s on Thursday and Friday of 50.5 and 64.6 respectively weighed on markets with Copper and Oil getting hit. Like many other markets copper had pushed sharply higher in thin liquidity trading to $3.44 lb completing a run from a low around $3.15 lb in Mid November. So the question of whether its really China or just liquidity coming back into the market is a reasonable one.

Anyway at week’s end the Dow was up 0.17% to 16,470, the Nasdaq fell 0.27% and the S&P was largely unchanged losing just 1 point to 1831. In Europe it was a more positive day with the FTSE up 0.19%, the DAX up 0.37% and the CAC was 0.49% higher. In Milan the FTSE MIB rose 0.97% while in Spain the IBEX 35 fell 0.39%.

On the ASX’s Sydney Futures Exchange the SPI 200 March contract rose 23 points to 5330

On FX markets in what were thin conditions the Euro’s reversal off the levels near 1.39 continued with the single currency dropping 90 points from the open to close at 1.3585. As noted above the Euro traded sharply higher in the thin liquidity but has reversed just as sharply in the subsequent trading days. How traders could ever think that Euro is worth 1.39 on a fundamental basis is beyond me but the market is the market.

Looking technically the high was not far off a third touch to the 2008 high on  a weekly chart basis which has some significance and suggests the 1.39 region will remain solid resistance but at 1.3585 where to now.

As the chart above shows there is every chance that Euro is at the start of a big break of an 8 or 9 month uptrend and while the 4 hour charts are over cooked a little on the downside the dailies suggest if 1.3512 gives way then the 1.32 high region is the target.

USDJPY on the other hand recovered 100 points from the day’s low finishing the week at 104.79 while the Pound lost a little ground to finish at 1.6418.

The Aussie had its first positive week for 11 weeks and seems to have found a base for the moment in the low 88 cent region. It closed the week at 0.8945 but off the high of 90 cents earlier in the day.

Looking back as 2013 ended the Aussie was under pressure and friendless but buyers have begun to congregate in the 88 cent region and the first trading week of 2014 as noted above was it’s first positive week in 11. While it is clearly to early to say the trend to Aussie weakness has ended there is a glimmer that the outlook is turning when we look at the daily charts and crosses like the EURAUD which traded above 1.5550 a week or so ago and closed the week at 1.5179 (sure on the back of a lot of EUR weakness but also AUD strength).

I’m short and looking for a break of 1.51 to knock this one much lower.

On the AUDUSD direct look for a break – if it happens – of 0.9025 to kick hte Aussie higher.

On commodity markets crude lost 1.55% to $94.31 Bbl, gold gained 1.09% or $13 to $1236 while copper lost 0.74% to $3.40 lb. On the Ags Corn, wheat and soybeans were amongst the worse performing markets in 2013 but finished Friday higher rising 0.71%, 1.47% and 0.17% respectively.

Those who have been long term readers of my daily musings know that in late 2012 and then again in January 2013 I was bearish gold believing it was going to break wide open – which of course it did and we updated the outlook on the way down and in these dailies.

The low of the last 12 months was of course just under $1180 oz back in June and then again over the last few weeks – particularly last week when it rallied strongly from this level.

As you can see in the chart above gold is still in a very big down trend, both from the 2012 highs and since March 2013. During this sell off it has had many recoveries and subseqent falls but it might be building a base in the low $1200 high $1100 region. Confirmation will be if it can take out the March trendline at $1281 – still some way away but time will tell.

On the data front on the day today it is a monstrous day for HSBC and Markit Services PMI’s with China and Germany the big ones. In Australia we have our own version in the Australian Industry Group performance of services index and the US has the ISM non-manufacturing out tonight. Also out tonight German CPI will give a lead on ECB policy as Europe increasingly looks to be heading down the Japanese road toward deflation.

Have a great day and good hunting

Greg

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