Is the Aussie forming a double top while stocks struggle

October 10, 2013

No denying that the only thing that matters at the moment, at least in a macro senses, is what is going on in the US, the Government shutdown, the debt ceiling and the appointment of Janet Yellen (her nomination at least) for Fed Chairwomenship.

So it was that we received a bit of good news in the past 24 hours. First news that Janet Yellen – the best candidate – was going to be nominated and then signs that the Republicans and Democrats are moving closer to talking properly even if a resolution is a little way off yet.

So even though there was some weakness into the close on US markets the Dow closed up up 26 points or 0.18%, the Nasdaq is down 0.46% as tech shares came under attack earlier in the day and the S&P 500 is up 1 points or 0.03% but 10 points off the low.

The really important thing to remember here though is that performance needs to be viewed in the context of the release of the FOMC’s minutes from the last meeting which showed that even though the Fed didn’t Taper most participants still thought they would be doing so before the year is over.

Techincally though the S&P 500 gets a FAIL overnight.

Indeed it was the easiest sell of the year last night with the S&P trying to break back above  the trendline it broke through the previous day but failing. This keeps the focus on the downside for a day or two more before we can get a better handle on the trend.

The Australian market will be lead by the US so watch that space and it is worth noting that the SPI had a down night on the SFE falling 14 points.

On European bourses it is worth noting they were closing when US stocks were lower. At the close the FTSE was down 0.44%, the DAX lost 0.45% and the CAC fell 0.16%. Milan and Madrid rose strongly up 0.98% and 1.29% respectively. Perhaps it was the Spanish announcement that they had overstated their debt position that helped the periphery.

As a consequence of the Fed taper story the US dollar is a little stronger against the Euro which fell from a high of 1.3604 to sit at 1.3525 this morning, GBP was crushed by weaker than expected industrial production data which fell 1.1% mom against an expectation in the market of a rise in 0.4%. It is off 0.73% at 1.5965 from a high of 1.6121! The Yen lost a little ground and is back at 97.32 but the Aussie dollar has been immune to US dollar strength and is up 0.28% to 0.9448.

The question for Aussie traders is when and how will the Aussie break out of its current box trade? The weekly charts for the Aussie dollar are still suggestive of a run higher but at the moment the dailies are stalling a bit even if the Aussie was able to withstand the USD’s strength overnight.

Clearly the recent run above 95 cents failed at the 38.2% retracement of the down move but the inability to run higher is a cause for pause for the bulls.

The key thing to remember for the moment is that the Aussie is in a box and only a break of the high, which would signal an extension or a break lower through 0.9270 (which would herald the double top) would cause this range trade environment to change.

Moving onto USDJPY we saw a recovery Yesterday the recovery in the USD which began with news of Janet Yellen and continued after the Fed minutes talked about Tapering this year (which when you think of it are pieces of information at odds with each other)  saw the USDJPY find support at the 200 day moving average.

Now there is a reason that traders look at longer term moving averages such as the 50 and 200 day ones – everyone else is looking at them.

So the recovery is worth watching because if the 200 day moving average, which USDJPY has not been below since the rally started under 80 Yen last year, gives way a wave of selling and a big trend change could result.

On commodity markets Nymex Crude fell 1.96% to $101.46, Gold dropped 1.31% to $1306 and Copper dropped 1.84%. Doubtful it was about the IMF’s downgrading of global growth and more likely this is about US dollar strength and the Taper. The Ags were positively boring by recent standards overnight with Corn up 0.57%, Wheat fell 0.50% and Soybeans dropped just 0.1%

On the data front in Japan we get foreign investment and machinery orders and in Korea the BoK will announce its interest rate decision but it is the Australian employment data today which is the big release. The market is expecting around 15,000 new jobs to be created.

Tonight in Europe we get the ECB monthly report Industrial output in Italyand the BoE interest rate decision. In the US jobless claims.

The above first appeared in my Business Insider 20 Seconds for traders piece this morning.

Have a great day and good hunting

Greg

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