Has the bear been awoken as fear of the Taper increase? Aussie and Euro pressured

November 8, 2013

One of the biggest news night on markets for a very long time with the Twitter IPO, ECB rate cut and stronger than expected US GDP – not to mention the meltdown in the S&P 500.

OK so that might be a bit of an hyperbole given that the S&P only fell 1.33% but the fact that it made a new high and then a new low not only on the day but also on the week/s suggests that it has much further to go yet. The  traded high owas 1775 but for the last 8 or 9 hours it has been in a relentless decline and closed at 1747 down 23 points or 1.33% on the day.

The data is the culprit because it is putting a taper back on the agenda when the market thought that it was receding back into 2014. The 2.8% annualised growth rate for GDP has reinforced recent data suggesting the US shutdown really had a limited effect on sentiment and the US economy entered this quarter with stronger momentum than many thought probable of possible. So Dectaper may be on the table even though 2014 seems a better bet. The Dow closed down 152 points or 0.96% at 15,595. The Nasdaq is off 1.91% at 3,857.

The S&P 500 is the global bellwether so it’s worth noting that last night it reversed off a new high and then made a new low for the week – that is bearish an it’s engulfing.

Our target of 1727/9 remains but it looks like the market is going a lot lower yet, 1694 is the fast moving average on the weekly charts nd 1686 is the uptrend line from October last year.

In Europe stocks opened in the red spiked on the ECB rate cut to 0.25% and then fell heavily. The FTSE fell 45 points or 0.66% to 6697, the DAX somehow rose 0.44%, in Paris the CAC fell 0.14% while in Milan the FTSEMIB fell 2.07%. The IBEX in Spain dropped 0.99%.

Closer to home on the Sydney Futures Exchange the December SPI 200 contract is down 27 points at 5400 bid. Support has been strong each time the ASX and the SPI has dropped over the last week and today is going to be a big test for the bulls with a break lower likely.

The ECB surprised everyone except our US Colleague Matthew Boesler who wrote a great piece yesterday on a possible cut. The ECB’s move to 0.25% and the comment that the rate would “remain at present or lower levels for an extended period of time” hit the Euro super hard and it fell to a low of 1.3295 before a solid bounce to 1.3427 for a loss of only 0.63% on the day. Importantly from a technical perspective Euro feel down through and has failed at a retest of the 5 month trendline.

Looking at the Euro’s technicals it was an interesting recovery but so far it has failed to get back inside the trendline which suggests lower levels still.

The weekly and dailies are both suggesting lower levels based on my trading method so a drift back toward last nights lows is on the cards with resistance topside at 1.3463.

In other FX markets The Aussie tried to rally making a high of 0.9529 but sits at 0.9445 right on 3 month support and looking like it is going to break lower. Sterling is roughly unchanged at 1.6085 and USDJPY is down 0.79% to 97.87 but off the low of 97.63.

The Aussie is currently bouncing a little off trendline support from the little rally which might be called the start of wave two if you are an Elliott wave dude. If, when, it breaks the target is 0.9285.

Obviously it hasn’t broken yet – but when it does I’ll go with it.

On commodity markets Bitcoin made a new all-time high at 324.20 before falling back to 299.45 this morning. It’s rally over the past few weeks has been lubicrous and while in some quarters this reinforces that it is becoming a genuine medium of exchange price swings like this and a lack of real hedging market are big barriers for the moment. In other commodities _ I’m saying Bitcoin is a commodity because it can be mined, I can’t create Aussie dollars by digging them up – Nymex Crude was 0.56% lower to $94.27, Gold fell 0.71% to $1305, copper was up 1 cents to $3.25 lb. On the Ags corn fell 0.3% and is at 1 year lows, wheat is up 0.11% and soybeans rallied 1.25%.

On the data front over the next 24 hours we have Chinese trade data today, German trade tonight, French Industrial production, UK trade before the big one which is US non-farm payrolls. After last night if the number is bigger than the 125,000 expected the US dollar is going to roar, Euro and Aussie will get hit and stocks are likely to get smashed. So watch out at 12.30 pm tonight.

Have a great day, good hunting and look out for a surprisingly strong non-farm payrolls tonight at 12.30 AEDT.

Greg

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