Overnight Wrap – Aussie still rallying, gold pulls back

September 5, 2013

Overnight trade was fairly quiet given that the US Senate Panel approved a limited strike on Syria. Gold and Oil fell, the Aussie stayed strong and rallies in stock markets in the US helped pull Europe out of the red.

It is a different dynamic to what we have seen recently as fears of a Syrian attack have seen the absolute reverse of what happened overnight. Which of course begs the question if these moves had anything to do with Syria at all. For mine I don’t think it did – I reckon markets are being driven by uncertainty and short term traders pushing the market from one edge of the range to the other until the more medium term players enter again.

And so it is with the Australian dollar which is going from strength over the past two days and sits at 0.9170 this morning around 1.4 cents higher than yesterday’s low just before the GDP. Of course it’s relative strength, but as the global economy heals so expectations about Australia and the Aussie dollar are healing too.  The Loonie is stronger as well suggesting this global growth story is gaining traction.

In other FX markets Euro (1.3209) clawed back a bit of ground against the US dollar, GBP(1.5626) is going from strength to strength as well with its data flow printing really strongly lately with services PMI up above 60 now.

Stocks took the announcement of a limited strike on Syria in their stride after the US Senate Panel authorized such a move with the Dow up 0.65%, Nasdaq 1.01% higher and the S&P 500 back above 1650 with a gain of 0.81%.  Europe did ok as a result and the US strength dragged them out of a steep decline with the DAX rallying from 8096 to close 100 points higher in the last couple of hours trade. The FTSE was up 0.10%, the CAC 0.15%, Spain’s IBEX +0.53% but Milanese stocks fell 1.35%. In Australia today the ASX should open firm but it hasn’t been able to kick on this week so it looks like more range trading below 5200.

On commodities Gold actually fell as the clinical nature of the strike becomes apparent but this is very strange price action but it is down 1.42% to $1393 oz with Crude also falling 1.09%. Copper is at $3.24 lb down 1.68% and Soybeans dropped back from recent strength with a fall of 2.61%

On other data the Fed’s Beige Book said that the US economy grew at a modest pace in August lead by consumer spending which has to be good news for the economy moving forward particularly given the demand for housing related goods.

Today we have a big data flow day with Japanese GDP will be huge and the Australian trade balance instructive and then of course the BoJ decision. Factory orders in Germany, BoE interest rate decision, ECB interest rate decision and presser. In the US it is the ADP jobs data and jobless claims as well as labour cost and productivity data.

The market is getting bullish on the Aussie dollar

Behavioural finance is one of the key drivers of my process. Its the Keynesian beauty parade writ large when it comes to markets and it helps explain why its the data relative to expectations which is often more important than the data per se.

I’ve notice that something is stirring in the market with regard to the Aussie dollar lately and penned a pice for Business Insider last night which helps to understand why that might be the case.

From a technical perspective though the important point is that the Aussie is just in a big old box between 0.8840/50 and 0.9230 with an extension to 0.9350. This is the key hurdle – if the Aussie can get through 0.9350 then it’s 95-96 cents.

Time will tell – unless and until the box breaks the AUD is just trading a range but sentiment has turned a little over the past week.

GBP might be a good trade?

GBP has been amazing lately – the data flow has been much better than expected as you can see in the chart below of the economic surprise index from Citibank.

The impact of this has been that GBP has been quite strong against the USD and improving against the Euro as well as you can see below.

A break of 0.8390 in EURGBP terms could be decisive and also watch GBPUSD at 1.5710/20 equally a reversal off these levels reinforces the range. So either way there is a potential trade there.

Good Hunting and have a great day

Greg

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