Gold reverses and Aussie faces a Capex challenge today

February 27, 2014

The US dollar got its mojo back overnight knocking gold and currencies for 4 – not six but still a good result.

But it didn’t help stocks which turned down from around 2pm New York time with the S&P 500 off around 8 points from the high of the day at 1853 but off just 0.01% at the close. The Dow is down from the highs as well but still in the black with a gain of 0.11% while the Nasdaq is also in the black up 0.10%.

In Europe stocks were under pressure although the US strength early dragged them off their lows the FTSE fell 0.46% even though UK GDP printed as expected with a gain of 0.7% in Q4 2013 unchanged from the first read. In Frankfurt the DAX fell 0.39%, the CAC dropped 0.4% while stocks in Milan and Madrid fell 0.37% and 0.18% respectively.

Locally on the ASX the March SPI 200 contract lost 20 points overnight to 5417 bid.

Worth noting in a macro sense is what is going on in China with the Chinese regulator pouring cold water on any concerns about its recent efforts to weaken the Yuan but it clearly is trying to weaken the Yuan as it joins the currency war after many years of letting the Yuan strengthen.

Equally something to keep an eye on from a geo-political and possible market threatening sense is the drills Russian President Vladimir Putin has ordered for troops in Western Russia in the wake of the Ukrainian tensions and sacking of its President. Just a warning to the new regime hopefully and nothing more.

On global FX markets while NYC position closing is taking the major pairs of their lows it has been a night of US dollar strength with the stronger than expected new home sales seems to have captured the attention. The Euro is off big time after the recognition in the market and a report from BNP Paribas that the ECB is going to take the QE plunge this year. It is certainly my base case but BNP is the first major global Bank to make the claim. As a result the Euro is back down under 1.37 at 1.3685.

Elsewhere the Aussie slipped back below 0.8950 earlier but sits at 0.8962.

The Aussie is trading back toward the bottom of the recent 150 point box it has been moving in recently, the parameters of which are broadly the 23.6% and 38.2% retracement levels of the move from October to late January.

My sense is that Capex will decide the fate of this box unless it prints at 0.0% as the pundits expect.

Levels to watch are 0.8920 and 0.9050 short term.

The Pound sits at 1.6664 while USDJPY is resting mostly unchanged at 102.35. Also worth noting the Turkish Lira is under attack again but this time it seems more about a recording released on social media purporting to be of the Prime Minister instructing his son on how to hide funds rather than an specific Turkish economic problems.

On commodity markets gold’s reversal was a big one. After trading just below $1345 an ounce yesterday it is back at $1325.60 for a loss of 1.1% day on day. Technically it looks like gold may have finally made a high for this run.

I have thought gold is heading under $1300 for a week or two now and while I got out too early and missed the move to $1345 yesterday I am flat still expecting this move.

I am not alone in this view and picked up the following comments from BoA Merrill analysts

“The impulsive intra-day decline from today’s 1345 high says that the trend has turned ahead of the confluence of long term resistance between 1350/1367,” BofA projects. With the ADX at trend ending extremes, and daily momentum posting bearish divergences, target 1270, potentially long term triangle support at 1185.”

That’s pretty much the same level I am looking for.

Nymex crude is up 0.65% to $102.49 though after the smaller than expected build in crude stocks announced by the EIA over night. Copper has tanked though which is a big sign of real concern about China, the Yuan weakening and the global economy falling 2% to $3.27 lb. The Ags had an interesting night with corn down 0.82%, wheat fell 2.44% and soybeans rose 0.59%.

On the data front Q4 Capex data is due out in Australia and after the weaker construction data yesterday this will be watched closely for an indication of where the mining investment boom is now and whether there is any take up of the slack in other parts of the economy. The markets is expecting no change.

Tonight we get German employment and unemployment together with German CPI which will be huge, EU wide confidence and business climate are also out. In the US durable goods, initial jobless claims and a speech, postponed, by Janet Yellen to the Senate.

Have a great day and good hunting

Greg

@gregorymckenna on Twitter

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