Risk off but Aussie up amid global market turmoil.

March 4, 2014

Not much else matters except the Crimea, Ukraine, Russia and the Black Sea fleet overnight with markets assailed by fear in what has been a pretty aggressively risk off day – especially in Europe. Interestingly, and showing just how aggressively Russian President Putin is playing this at the moment, was the fact that he attended Russian War Games overnight while the west postured and protested.

It’s a strong signal that he is unmoved and unwavering at the moment. It’s also a bit of a worry!

The result was that assets close to or impacted by the geopolitics of this event moved – and then some. Stocks are down, gold and the US dollar are higher, US Treasuries have rallied, crude prices are up again and wheat has surged dragging corn along for the ride.

Uncertainty is never good for markets and nothing is more uncertain geopolitically then what is happening in Ukraine at the moment. Indeed it’s an environment ripe for rumours and falsehoods with Ukrain saying that they have received a Russian ultimatum to surrender in the Crimea and the Russians saying its bunkum.

So at  the close US Stocks are off their lows but the Dow is still down 154 points or 0.94%, the Nasdaq is off 0.72% while the S&P 500 has lost 13 points to 1846 for a 0.72% loss.

The question for me though is what did we learn about stocks last night? Not much is the answer if you look at the chart below but I’d argue that we can now sell the S&P 500 in the size that will allow me to have a stop above the recent high.

Have a great day and good hunting – keep your tin hat handy

In Europe of course things were much worse due to their proximity to the standoff. The DAX fell 3.44%, the CAC dropped 2.66% and stocks in Milan and Madrid lost 3.34% and 2.33% respectively. The UK performed relatively better down 1.49%.

Locally the Aussie dollar is actually up and sits at 0.8930 and the ASX in Futures trade overnight has seen the March contract on lose 23 points to 5365 which even with yesterday’s fall is not a bad performance.

The price action in the Aussie dollar is fascinating even though as someone who is short I am on the wrong side of it.

As I noted yesterday you just can’t keep the bulls at bay at the moment as they constantly come in to buy any dips in the Aussie dollar versus the US – which means of course that I am missing something.

Perhaps the price action is reflecting the RBA meeting today which might just provide bulls another chance to buy if the RBA doesn’t mention the dollar again. Perhaps it’s   a genuine safe harbour bid because we are so far away from the action. Either way though we are not many days away from me exiting my short and expectation the Aussie would fall back to 87 cents.

My Target is the blue line – we’ll see.

On global FX markets it was a tale of US dollar strength across the board (except versus the Aussie) with the Euro down 0.38% to 1.3732, Sterling lost 0.52% which is a bit weird given the positive data but regardless it sits at 1.6658 this morning (I’m short). The USDJPY is trading below an important trendline support which gave way yesterday and while it hasn’t broken open yet at 101.37 it looks biased lower.

On commodity markets gold bounced $31 or 2.35% to $1352, Nymex Crude was up 2% to $104.64 (a big tax on the global economy) and copper closed down a cent at $3.22lb. On the Ags wheat fairly roared (Ukraine farmers were already holding onto wheat last week) up 4.63% while corn was 1.69% higher and soybeans fell 0.49%.

On the data front today the RBA meeting this morning will see the results announced at 2.30pm. We have a great preview from Annette Beacher from TD this morning. Also out in Australia are building permits, Q4 current account balance which is important for tomorrows GDP.

Offshore UK PMI, Euro PPI and US ISM New York and the monthly Redbook index are out.

The key though remains the Crimea and all eyes will remain focussed on it.

 

 

Greg

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