US dollar crushing Euro as commodity bloc improves

September 25, 2014

USA! USA! USA!

As data for China, Australia and Europe points to weaker growth the US dollar is rising once more as the data highlights the increasing divergence between its outlook and the rest of the world, especially europe.

Indeed the big dollar swept the Euro lower after the data from the two regions reinforced the divergent economic outlooks. NAB co-head of Currency strategy Ray Attrill wrote this morning that the,”juxtaposition of another significant downside Eurozone data surprise (German IFO) and a major upside surprise for US New Home Sales (+18%) has – unsurprisingly – pushed the EUR below 1.28 against the US dollar for the first time since 10 July 2013.”

technically and fundamentally the move lower in Euro does not look over yet.

On the daily charts (weekly above) the outlook has been for a move to the this region as a first stop in the big selloff. Longer term however low 1.20’s maybe even under that level seems a high probability given the outlook.

There is no underestimating this as seismic shift in markets which is depressing anything denominated in US dollars. The Aussie, iron ore, gold, commodities and currencies generally have all been under pressure lately even though last night they did better.

Overnight in currencies there was a departure from recent fare with the NAB’s Attrill highlighting that this morning “commodity currencies sit at the top rather than the bottom the FX leader board.” Of course European currencies are at the bottom of the heap and the big short term news is the Aussie has broken its September downtrend line and is trying to move higher.

This morning the Aussie is at 0.8882, Euro at 1.2778, GBP at 1.6335. The Yen defied Abe’s comments that essentially said ‘the yen has weakened enough’ and he is cogniscant of the impact on his Asian neighbours by yen devaluation. This morning USDJPY is back above 109 at 109.05.

I’m still short, stop above 109.53

Turning to stocks it seems that for the moment the US economy is getting stronger but still not strong enough to completely derail stocks. Overnight with the Dow up 154 points for a gain of 0.9% to 17,210. The Nasdaq rose 1.03% to 4,555 and the S&P leapt 15 points to 1,998 for a gain of 0.77%.

In Europe ECB President Draghi repeated his “whatever it takes” comments which was timely given the German IFO data was released a couple of hours later. So, at the the close bad news and the promise of free cash saw European stocks rally with the FTSE up 0.45% to 6,706, the DAX was 0.7% higher to 9,662 and the CAC in Paris rose 1.25% to 4,414. Milanese stocks continued their volatility rallying 1.67% while stocks in Madrid were 0.51% higher.

Locally the ASX futures market was buoyed by offshore moves with the December contract rallying a solid 23 points to 5,401. The rally in iron ore overnight – however ephemeral it may be – should help at the margin as well.

On commodity markets iron ore bounced with the December contract up $1 a tonne to $79.55. Is it a sustainable bottom? Only time will tell. December Newcastle coal fell 5 cents to $66.25.

– Elsewhere Nymex crude rose 1.43% to $92.87 a barrel, copper is at $3.05 while gold is at $1,217 and silver sits at $17.67. On the Ags wheat rose 0.97%, corn was 1.23% higher and soybeans dipped 0.32%.

Today Glenn Stevens is talking at 12.30 in Melbourne and the market will be hanging on any further comments on housing or the Aussie dollar. US durable goods order tonight is the big global release.

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