Hands up if you think the Aussie dollar is a safe haven. Stocks fall and the VIX rises

June 25, 2014

So stocks and the Aussie dollar can go down.

Last nights price action in the Aussie highlights the point I made yesterday about my sense that the Aussie can’t rally without global ebullience at the moment. The flip side is that it falls when a little risk is taken off the table.

Where are all the safe haven buyers now?

Anyway the Aussie might be lower but its not an isolated move with both the Kiwi and Loonie also weaker. that’s not to say this isn’t a decent reversal for the Aussie which at 0.9367 this morning is back below the level before the Chinese flash PMI on Monday.

I’ve left the Darvas box off today because you know where it is. The key level for me is if the Aussie tests 0.9340/45 it needs to hold otherwise a deeper retracement is coming.

One thing to note about the Aussie’s weakness and stock market falls is that the VIX (stock market volatility) index rose. There’s life in the old dog yet!

So at the close the Dow was down 119 points for a fall of 0.7% at 16,818, the Nasdaq fell 0.43% to 4,350 while the S&P 500 lost 13 points or 0.64% to 1,950. My view – only a break of 1923 will open up further downside.

Datawise in the US new home sales surprised everyone by printing above 500,000 units in May for a rise of 18.6%. Confidence was higher as well printing a six and a half year high at 85.2. The Case Shiller house price index rose 10.8% in the year to April as overall price appreciation continues to decelerate. Richmond Fed manufacturing was disappointing however printing 3 against 7 last.

In Europe the big news was that BoE Governor Mark Carney struck a more dovish tone on the economy and interest rates noting slack in the employment market and lack of inflation risk. He took a pasting from currency traders on twitter but his change of tone, which was accompanied by similar comments from MPC member Charles Bean, might simply reflect the fact that Janet Yellen was dovish on the US interest rate outlook and Carney and the BoE does not want Sterling above 1.70.

On European Stocks the FTSE fell 0.2%, Milanese stocks fell 0.25% while in Madrid stocks dropped just 0.11%. In Paris stocks eked out a 0.05% gain while the DAX was up 0.17% even though IFo business assessment (114.8), climate (109.7) and expectations (104.8) were a little weaker than expected.

Global bond markets saw rallies in Italy and Spain 10′s of 3 points to 2.76% and 2.65% respectively, UK Gilts were unchanged at 2.74% while Bunds were down a point to 1.32%. In the US however with stocks off the bulls had the market under control drive 10′s 5 points lower to 2.58% – a capital gain of 1.83%!

The ASX, which had a weak day yesterday with the physical losing 0.4% to 5432, had a shocker overnight as September futures dropped 27 points to 5360. The technicals look terrible and the ASX futures are at their lowest since mid-April.

Turning to currencies Sterling is down with GBPUSD at 1.6981 which suggests that traders headed Carney’s warning but still think the economy is in good shape. The Euro sits around 1.36 still at 1.3604 and USDJPY remains becalmed 20 points either side of 102. It sits at 101.94 this morning.

On commodities iron ore was unchanged at $93.75 for September delivery. Newcastle coal fell another 15 cents to $70.35 tonne. Nymex June crude is back below $105.94 Bbl, gold is trying really hard to break out at $1318 oz and silver is up at 20.86. Copper lost a cent to $3.14 lb while the Ags headed lower once more and remained pressured. Corn fell 0.39%, wheat dropped 1.51%!!! and soybeans lost 0.79%.

On the data front nothing of note besides RBA Deputy Governor Lowe’s speech today before the German Gfk consumer confidence this evening and then its durable goods in the US, the third read of Q1 GDP and personal consumption.

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