Pressure off Gold and Aussie dollar as market truce erupts

August 29, 2013

Recap

  • Stocks and bond rates up, gold lower and pressure off the Aussie Dollar as traders were relatively more hopeful as it was all quiet on the Syrian front.
  • On the 50th anniversary of the March on Washington and Martin Luther Kings famous speech it was unlikely hostilities were going to break out that quickly but it seems Britain is certainly keen for an intervention in Syria – perhaps the mere threat of missiles coming through the palace window might encourage the Assad regime to negotiate but as we have seen in the past these things tend to generate their own momentum so the risks remain of military intervention as a consequence market dislocation.
  • At the close the Dow was 49 points higher or 0.33%, the Nasdaq up 0.40% and the S&P finished mid range on the day up about 5 points to 1634. Some of this rally could be squarely placed at the feet of the much weaker housing data that was released overnight and the impact on Taper talk. Pending homes sales fell 1.3% in July against expectations of a rise of 0.2%.
  • Across the Atlantic in Europe which is all that closer to the Syrian conflict and potential conflagration stocks were less ebullient. The FTSE was 0.17% lower, the DAX fell heavily, down 1.03% and the CAC was 0.22% lower.
  • The ASX will open better today and retain a bid tone most likely until we see what Capex does to expectations about rates.
  • Proving that the rally in US Treasuries and other interest rate markets the night before was pure “fear based” 10’s sold off to 2.77% for a rise of 6 points. Bunds rose 3 points to 1.88% and Gilts were up 2 points.
  • Speaking of Gilts Mark Carney, BoE Governor went a couple of steps further with the evolution of forward guidance saying that if the market unwinds his stimulus efforts either with higher rates or indeed a stronger Pound he would act. This will cap Sterling which last night printed in the low 1.54 region and looks biased into the 1.53’s and then we’ll see how low it is going.
  • On other FX markets the Aussie came under heavy pressure yesterday trading briefly below 89 to 0.8887 before rallying back to 0.8936 at present. Euro (1.3339) fell to  1.3303 from a high just under 1.34 yesterday. The Yen (97.627) lost a little ground after USDJPY traded down to a low of 96.83. All in all, like other markets Forex is going to be hostage to the potential SYrian escalation for a little while yet with Aussie and Yen the obvious loser and winner if  something more serious breaks out.
  • On Commodity markets Nymex crude rallied up above $112 bbl yesterday before settling back overnight as tensions eased a little and there was a big build in US Crude stocks last week. Gold finally hit the top of the trend channel and reversed a little from its $1432 high (MT$ Terms) and is back at 1417 this morning. Silver was down 1.05%, Dr Copper fell 3 cents to $3.32 lbs. The Ags can’t help themselves but were relatively quiet overnight with only Soybeans moving more than 1%.

On the data front today we see Korean current account, Japanese retail trade and foreign investment, new home sales and private capital expenditure in Australia (HUGE for the AUD and Interest rate futures) before a raft of European data the most important of which is German unemployment and CPI. In the US it is the next release of GDP for Q2 and then initial jobless claims, personal consumption and a Speech from Fed President Bullard.

The RBA wants the Australian Dollar Lower

Former HSBC Chief Economist and now RBA Board member John Edwards has been talking the Australian Dollar down in an interview with James Glynn of the Wall Street Journal yesterday.

 It is “still a bit too strong to help, to the extent it could, in the transition we need to make,” he said

Mr. Edwards said the next leg down for the Australian dollar will come when the U.S. Federal Reserve begins to scale back its bond-buying “quantitative easing” program, which he said is likely in the coming months. The start of the tapering process “is highly likely to be associated with a strengthening of the U.S. dollar and a weakening of our dollar, which will be good for us,” Mr. Edwards said.

As a former Chief economist who was close to the market Edwards knows the impact of the words of someone in his position on the market so he is likely to be a mouth piece for the Reserve Bank which itself said after this month’s rate cut that moves in the Australian Dollar were important for monetary policy. It is exactly the same message that Mark Carney tried to get across last night and one the Kiwi’s experimented with a decade or so back.

Monetary conditions in an open economy are the sum of domestic interest rates and the external transfer price for the economy, the exchange rate

It seems the RBA has an easing bias but its the Aussie Dollar it wants to ease not interest rates.

Gold hits the top of the channel

So my experiment with Gold trading cost me a massive percentage of my account as I got stopped out yesterday. With the benefit of hindsight I could have achieved the same result, in terms of learning about the market, with much smaller positions and in one account not both, but with such a decent percentage on the line it did focus my attention on the inticacies of the market and I have a good feel for it now.

Equally, having ignored my system as I was mucking around – I would have been long not short had I taken the signal – I know that it is transferrable to gold as well.

Anyway – I am short again now at $1422+ but only in one account as the guys following me in the other asked me not to trade gold in that account and stick to currencies, which is cool but it will take ages to make the money I lost back.

The set up is as follows, based on 4 hour charts:

  • Gold pierced the top of the Bolly band
  • Gold hit the top of the uptrend channel
  • The MACD Histogram is trending down

So I have clear levels to go short against which is what I have done.

Support today is my fast moving average at $1411 on the 4 hour chart and if that breaks then $1400. If it holds I might cut the posi.

On the dailies if we have a down day today and if we trade through $1411 then a much deeper retracement is in the offing – maybe even $1375.

Have a great day and good hunting

Greg

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