Gold has a mini crash and crude is set to break

January 7, 2014

If you are a gold trader you would be leery of the price action last night which caused a little “flash crash” which saw Gold drop more than $30 ounce as 4200 contracts hit the market around 10.15 New York Time. If you are a cynic you’d say someone was testing the recovery off last week’s lows and looking for stops. Of course the fact that gold fell $30 tells us some stops were found but the recovery has been pretty solid even if gold remains vulnerable after last night.

Another big point of interest overnight has been the weaker than expected Services PMI’s around the globe which kicked off with the HSBC China services PMI yesterday with a print of 50.9. this was followed up with weaker results in Italy (47.9), Germany (53.5), UK (58.8) and in the US the ISM non-manufacturing PMI was also below expectations printing 53 against 54.6 expected. One bright spot was that with the exception of Italy all these misses were still in the expansion zone and EU wide and French (yes French) services PMI were at or above expectations.

It’s weaker data but as I wrote at Business Insider this morning the global economy is looking strong into 2014 which should help equities and also insulate the Aussie dollar from falling too far this year.

Looking at markets though at the close US stocks are off their highs for the day but also off their lows with the Dow down 0.27% at 16,425, the Nasdaq is down 0.43% and the S&P 500 is down 4 at 1,827.

In Europe it was a similar story with the FTSE flat but off its highs, the DAX is down 0.08%, the CAC fell 0.46% while in Milan and Madrid stocks rose 0.63% and 0.93% respectively.

On the ASX the SPI 200 in futures trade overnight mirrored the offshore moves and is down 6 point to 5298 bid.

On Forex markets given the above it is difficult to reconcile the rally in the Euro given the inflation outlook and the pressure this is going to put on the ECB to cut further and use unconventional monetary policy in the months ahead. But rally it did and the Euro is up 0.3% to 1.3630 and off a low of 1.3570 after the Chinese data yesterday. GBP is largely unchanged at 1.6405 but USDJPY is down 0.52% to 104.31.

Let’s have a look at the big trend of 2013, USDJPY – but it’s a messy one.

Before the holidays we targeted 104 and then 106 but the recent high has only been 105.47. My sense is for the moment that this is enough and USDJPY wants to find the true level of support.

Clearly this is a big picture chart but 103.64 has to hold for the rally to remain intact over the shorter term time frame of days and a couple of weeks.

Looking at the Aussie dollar it is up slighthly to 0.8960 this morning

On Commodity markets Nymex crude is in danger of collapsing according to the technicans. It sits at $93.67 Bbl through the trendline from the 2008 low and just 90 cents above an important trendline from 2012. Copper sits at $3.41 lb, up 1 cent while in the Ags corn bounced 1% (weather related maybe?) wheat was flat and soybeans rose 0.58%.

As noted above Crude is very close to a big break right here and now – a break that, if it comes will be all the more powerful because of the recent thin market foray above $100 and the impact this would have had on sentiment.

A break opens $91.71 and should that give way the target is $85.92.

On the data front it is worth noting that over the next few days that US markets and the economy are going to be assailed by this artic vortex which might keep many traders from their desks and make trading extremely thin.

Today in Australia we’ll see the trade data for November and then tonight in Germany retail sales and unemployment will be released along with EU CPI and PPI all of which are super important for ECB expectations. In the US tonight trade data is out along with the redbook index and the IBD/TIPP optimism index.

Have a great day and good hunting

Greg

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