US dollar dominates and a trading lesson from Sterling

September 22, 2014

Rightyo while everyone wants to talk about the success of the Alibaba IPO which jumped 30% on debut. The big shift in markets is happening in currencies and it is all about the US dollar and its renewed ascendancy.

Given it is a very quiet data week only short term exhaustion can probably derail what is becoming a big shift in global markets toward US dollar strength.

Indeed the Aussie and Yen both look like prime candidates for a pullback at sometime soon but until then the trend is your friend. They sit this morning at 0.8932 and 109.02 respectively.

I’ve sold some US dollars versus the Yen this morning. Second go in a week to try to pick a top but the last one didn’t cost me anything and the stop is obvious.

The Pound had a cracking run of buy the rumour sell the fact making a high around 1.6525 before reversing course when all the buyers were done to close at 1.6290 where it sits this morning – OUCH.

These sorts of moves happen all the time and while the Scottish referendum was a huge event risk it serves as an example of how to trade such instances yes I stayed out of the way of the rally in the run up to 1.6525ish on the basis that even though there was a clear break I couldn’t risk manage effectively. But as I tweeted the first tweet at 1.6490 I was a seller.

As I say these things normally happen on a smaller scale but once again a great lesson was received in GBPUSD. It was behavioural and market positioning as much as anything. But axioms are axioms because more often than not, like wives tales, they work.

Euro is lower as well at 1.2826.

Turning to stocks and the Alibaba IPO didn’t stop the broader market from reversing off its highs and at the close the S&P reversed off a 2019 high to close down 1 point to 2,010, the Nasdaq dropped from 4,611 to close at 4,580 off 0.29% while Dow eked out a gain of 0.08%.

In Europe UK stocks were up 0.27 with the FTSE closing at 6,838 while the DAX was largely unchanged at 9,799. In Paris the CAC dipped 0.08% to 4,461 and in Milan stocks dropped 0.74% and in Madrid they rose 0.10%.

Geopolitics and Ukraine is of the radar a little but I wonder what the heck the Russians are up to. Last week we heard news that US and Canadian fighters intercepted Russian bombers and fighters heading toward Alaska and Friday we heard news (via ForexLive) that UK fighters were scrambled to intercept two Russian bombers. Sabre rattling but very strange.

Locally the December SPI 200 contract reversed course as US stocks dropped from their highs and closed Saturday morning down 18 points to 5,407.

Today is the day we find out if this is a bottom or the start of a deeper retracement.

In Asia with the USDJPY rate above 109 the nikkei ripped higher on Friday up 1.58% to 16,321. The Hang Seng rose 057% and in Shanghai stocks were 0.56% higher. There is virtually no data anywhere today so currency matters matter.

On commodities December 62% Fe futures fell $1.44 a tonne to $81.08. Newcastle Coal for the same month fell 10 cents a tonne to $66.95.

You’d expect commodities to struggle in a period of US dollar strength that is not yet associated with really strong growth. Indeed the G20 over the weekend called out Europe for its weakness. Crude dipped to $2.45 a Barrel, gold is at $1,217 and silver tanked 3.94% to $17.79. Copper managed to hold at $3.09 a pound and on the Ags wheat dropped 2.74%, corn fell 2.01% and soybeans dropped 1.56%.

On the data front there is absolutely nothing important out today. but tomorrow we get the preliminary PMI’s around the world.

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