FX becalmed as we wait for the ECB but the S&P made another high

June 5, 2014

I find this lack of volatility extremely unsettling in forex markets at the moment.

While I recognise that there is little fresh news out there at the moment and what news there is – including perhaps any ECB moves to cut tonight – is likely baked into the cake the very tight ranges still fell abnormal.

Perhaps it’s a northern summer thing, perhaps its complacency perhaps something else – who knows.

But as I noted yesterday  the Turtles will be getting ready for a break out when it comes – it’s only a matter of time.

Anyway to the question at hand of what happened overnight and we see that it was another evening where we saw  another marginal new high for the S&P 500 which finished up 3 points or 0.2% to 1,927.88. It was a solid move off the low of the day however at 1,919 as traders found nothing in the data to worry them. Indeed the data is actually not to bad in the US at the moment with the ISM services index up to 65.3 while Markit’s version of the same index came in at 58.1 which according to our colleagues in the US is a 26 month high.

Also out was the Beige book which true to its name showed growth in the US to be on the bland side across the 12 Fed districts – neither hot nor cold, while the ADP employment report showed 179,000 jobs were created in the US last month. On the negative front and something US dollar bulls won’t like the trade deficit hit a two year wide of $46.2 billion.

At the close on other US markets the Dow was up 0.09% at 16,738 while the Nasdaq rose 0.42%.

In Europe for the second day in a row markets recovered from early lows but in the run up to the ECB decision tonight the moves are fairly small. The FTSE was down 0.25% at 6,819, the DAX eked out a 0.07% gain to finish at 9,927 while the CAC fell a tiny 0.06% to 4,501. In Milan and Madrid stocks fell 0.16% and 0.19% respectively. Data-wise EU GDP printed as expected with 0.2% qoq and 0.9% yoy for the first quarter of 2014. Services PMI’s were a little on the weaker side than expected across the region except the UK.

Turning to rates while US 10′s were flat at 2.60% rates in Germany rose 2 points to 1.43% while in the UK there was a five point sell-off with rates rising to 2.7% on continued economic strength in the UK. On the ASX bond boards the 3 year bond contract lost 1 point to 97.14 (2.86%) while the 10′s also fell one point to 96.21 (3.79%).

Looking at the overnight trade in the SPI 200 June futures we see a nine point rally to 5452 bid. Iron ore ripped higher last night so we might see further gains today.

I didn’t put a chart in yesterday for the first time ever since I have been writing this note if I recall correctly. The reason for this is that if there is no trade there should be no trade. Sitting on your hands is a core part of trading successfully.

But finally this morning there is a chart that looks interesting with the 4 hour SPI 200 setup for a rally.

I’m looking for a move toward 5475/88 with a stop at 35.

On currency markets the boring trade continues with Aussie, Euro and GBP running on the spot. This morning the Aussie is at 0.9275, Euro at 1.3599 waiting for the ECB to do something or nothing – but there is no guarantee the Eruo will do anything – while the pound is at 1.6738. The only story of note is USDJPY back near 3 month highs at 102,72 and I can’t even get excited about that.

The levels on the down side for the Aussie and Euro, which seem to protected, but which would also see some heavy selling would be a break 1.3570 in the Euro and 0.9175 in the Aussie. Topside the range tops are obvious.

On Commodities Jun Nymex crude rallied strongly through 4103 Bbl but someone or something spooked the market and it is back at $102.39 more than a buck off the highs. the amazing thing about this is that the big draw in crude stockpiles supported the rally but clearly there are sellers lurking.

– Elsewhere gold is becalmed at $1243 oz with Silver sitting at 418.76 while Copper got absolutely poll axed falling 5 cents or 1.65% back to $3.10 lb. on the Ags it was a similar story with corn off 1.61%, wheat down 1.29% and soybeans down 1.32%.

On the data front today the excitement continues locally and there will be more than a passing interest in the April trade balance at 11.30 given the strength in net exports in the Q1 GDP yesterday. Then of course the Chinese Services PMI and Factory Order in Germany, EU wide retail sales and then the bell ringers for the night in the BoE and ECB interest rate decisions.

In the US we have jobless claims.

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