US dollar gets pollaxed as low volatility aids buyers. RBA key for Aussie

July 1, 2014

I wasn’t short Euro last night and it’s ability to push through the 200 day moving average would have ended any lingering bearishness on the night but the Euro back at 1.37 is ridiculous given where the EU’s moribund economy is.

But the market is the market and it was a big night for the US dollar which came under extreme pressure.

Not only is the Euro stronger but Sterling (GBP) is trading above 1.71 for the first time since late 2008 and USDJPY is closing in on 101.

It is a classic example of what can happen in low vol markets as traders become complacent with levels and then someone decides to drive against them. We end up with a break and a reversal of positions.

Last nights USD catalyst is hard to fathom. It could have been the fact that EU inflation at 0.5%, as expected, wasn’t terrible or it could have been San Francisco Fed President Williams comments that the Fed is on hold for “some time” which – regardless of where the Euro sits and what the ECB may do this week – gave traders and excuse to drive the US dollar down to its lowest level in 6 weeks.

Can it hold above 1.3670?

This is exactly the type of market that has me sitting in cash, worries people like Henry Blodget who has written another excellent warning on stocks overnight and it is a market that has central bank analysts saying that stocks are in euphoric territory.

But for the moment stocks in the US and Europe remain high, rates low and volatility, across so many markets, is non-existent.

Looking overnight then the Dow was 0.15% lower to close the quarter at 16,827. The Nasdaq rose 0.23% to 4,408 while the S&P 500 slipped just one point to 1,960.

In Europe somehow the DAX rose 0.18% to 9,833 even though German May retail sales missed expectations by a huge margin printing -0.6% against expectations of a rise of 0.7%. This saw the year on year rate decelerate from 3.2% to just 1.9%.

Elsewhere the FTSE was down 0.2% to 6,744 while the CAC in Paris lost 0.32% to 4,423. Spanish stocks dropped 0.33% and the FTSE MIB was 0.17% lower.

But weakness elsewhere hasn’t hurt the SPI 200 futures with the September contract up 9 points to 5,363 after a poor day yesterday. Iron ore tanked again overnight which might hurt the miners today.

On currency markets as noted above the the US dollar fell out of bed and the Euro is at 1.3693, Sterling is 1.7109 and USDJPY is at 101.29. The Aussie dollar lagged the strength elsewhere and sits at 0.9429. No doubt part of this lag was the RBA meeting and Governors announcement this afternoon which may be more dovish than the last statement if the recent minutes are a guide.

Will the RBA surprise? Can the AUDUSD break out of the box?

On commodity markets iron ore is down $1.58 tonne to $93.68 for September delivery. But Fortescue CFO reckons it will recover. Newcastle coal for September continued its rally rising another 20 cents to $71.55 tonne. Gold is finally trying to break a really big trend line and is at $1325 this morning on the back of a weak US dollar while silver is at $21.02. Copper rallied 4 cents to $3.19 but extra plantings saw the ags get absolutely pummeled. Corn dropped 4.23%, corn lost 3.5% and soybeans were 2.2% lower.

On the data front the new financial year opens with a big one in Asia with the release of the Tankan in Japan and both the national and HSBC manufacturing PMI’s in China., the AiG PMI and of course the RBA decision this afternoon at 2.30pm. Offshore its Markit PMI’s across the globe along with ISM in the US and construction spending.

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