The USD is under pressure and will fall further.

October 25, 2013

The Chinese selloff turned into a Chinese rally overnight as the better performance in the HSBC Flash PMI, which printed at 50.9 yesterday, drove stocks higher around the world and overshadowed what were the more mixed results in Europe particularly France.

So at the close the Dow was up 91 points of 0.59%, the Nasdaq rose 0.51% while the S&P 500 rose a more subdued 0.32%. Of note in US data jobless claims printed at 350,000. In Europe stocks were higher with the FTSE up 0.58%, the DAX up 0.69% and the CAC up 0.36%. In Milan the FTSEMIB rose 1.28% while in Madrid the IBEX was up 0.88%.

Closer to home trade on the Sydney futures exchange saw the SPI 200 contract is up 9 points to 5379 bid.

On forex markets the US dollar lost further ground with the Euro(1.3796) making a high at 1.3825, Sterling (1.6199) made a high of 1.6222 while USDJPY(97.34) fell to a low of 97.15.

The Aussie remains pressured at 0.9620 but the overall USD loss dragged it off a low of 0.9569 which was right on trendline support as you can see below.

If the USD is under the pump don’t get too bearish on the Aussie even though I’m not convinced that this run lower is finished yet based on my usual method. Key support zones are last night’s low, the fast moving average at 0.9555 and of course the previous top of 0.9520/25. 0.9450ish is not out of the question though.

More structurally though the NAB put a piece out this week which upgraded their forecasts for year end to 95 cents but more importantly – in the context of the overall US dollar move and non-Taper – their fair value model which takes into account the Fed’s QE says implies that “Fair Value” is 99 cents.

And we know that if the Fed is going to continue to buy bonds that the “risk on” meme is going to continue and stocks will continue to rise as you can see below – so the backdrop for the Aussie, and for stocks, remains positive.

As I noted in the BI piece I wrote yesterday, in many ways stocks might just be under performing against the Fed’s cash injections.

On Commodity markets Nymex crude held $97 overnight, gold was up $16 on the back of the USD more than anything at $1350 while copper closed at $3.27 lb. The Ags were fairly quiet for a change but the ANZ put out a report yesterday saying that, “Global wheat prices are likely to have bottomed for the 2013-14 marketing year, hitting a seasonal low in August and September.”  – good news for farmers.

On the data front we get CPI data, Singaporean industrial production, German IFO tonight, UK GDP, Brazilian trade and then US Durable goods orders. It also appears that South Korean GDP data is out tomorrow morning.

Have a great day and good hunting

Greg

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