Sterling selling off on BoE dovishness, Aussie looking for a breakout

May 15, 2014

I just love the way that Emma Lawson from NAB put it this morning when she wrote that markets aren’t functioning properly at the moment.

Lawson said,

It comes to something when the US bond market reacts more to the UK’s inflation report and ECB chatter rather than its own inflation indicator (however flawed). But, that’s the nature of markets at present. US 10 year yields slipped lower after the UK’s Bank of England were dovish and the ECB continued to outline possible easing measures.

Indeed the US reaction tells us, if we needed the reinforcement, that this market performance is all about free money and low interest rates

So yes, it’s a very strange world indeed at the moment with many individual stocks under pressure but the overall market in the US making all time highs. Last night the Dow opened at 16,718 but fell over the course of the day to lose 101 points or 0.61% to 16,614, the Nasdaq fell 0.71% to 4,101 while the S&P 500 opened at 1,897 before losing 8 points or 0.45% to 1,889.

In Europe with the BoE’s Governor Carney sounding quite dovish about the path of interest rates and the ECB easing recalcitrant and Bundesbank President Jens Weidmann said Germany would support some easing measures helped stocks recover from early weakness with the FTSE, DAX and CAC all largely unchanged at 6,878, 9,754 and 4,501 respectively. In Milan stocks fell 0.33% while in Madrid stocks rose 0.25%.

For local markets after the weakness yesterday, largely associated with the ex-dividend status of two of the banks, the pullback in US stocks has seen the June SPI 200 fall 23 points in overnight trade to 5488 bid.

On currency markets Euro has stabilised above 1.37 and sits at 1.3713 this morning. The yen traded above 102 but is back at 101.81 this morning and the Pound is rounding in on its big trendline support once again after the Dovish comments from Carney overnight. It sits at 1.6765.

GBPUSD is once again closing in on very important support at the trendline from late 2013. The key downside level to watch – and respect – is 1.6726.

A break would be decisive.

For the Aussie the sellers were out again over 94 cents last night and it sits at 0.9378 this morning but still in a solid, if gradual, uptrend.

0.9320/25 is the key support while resistance is at 0.9450/60.

On commodity markets the big news was the end to the silver fix in London. Silver rose 1.18% to $19.74 oz with the London gold ring looking into whether they will be able to offer something. Speaking of gold it has vaulted $1300 and sits at $1,306 oz this morning up $11 or 0.86%. Nymex crude is up 0.66% at $102.07 and copper surged again and sits at $3.17 this morning. The Ags were lower with corn down 1.69%, wheat dropped 2.71%, and soybeans fell 0.4%.

On the data front locally today we see consumer inflation expectations, new motor vehicle sales and the RBA FX transactions. Tonight the Opposition gives it’s budget reply statement but traders will be looking elsewhere at French, German, Italian and EU Zone GDP data before US CPI later on.

It is a huge 24 hours on the calendar.

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