US dollar reigns supreme amid strong data, Aussie and Euro pressured.

January 16, 2014

The Beige book was benign but stocks in the US rose strongly after a solid Bank of America report and a very healthy New York, Empire manufacturing index which  printed 12.51 against 3.75 expected which was the strongest result from 2012. Producer prices also rose up 0.4% as expected.

The result was that the S&P hit another fresh intra-day high of 1851 before closing at 1848 for a gain of 0.50%. The Dow rose 108 points or 0.66% to 16,482 while the Nasdaq rose 0.76%.

In was also a very positive night in Europe with the DAX up sharply which is hard to fathom given that German GDP came in at 0.4% against 0.5% but perhaps traders in Germany were both following US traders and thinking the ECB might need to do something about weak European growth. It is my fundamental view they’ll have to do something but the what and the how is difficult to ascertain at this point with rates already at 0.25% and the appetite for quantitative easing seemingly absent.

At the ned of the day the DAX was up 2.03%, the CAC rose 1.35% and the FTSE moved up 0.79%. In Spain the IBEX 35 rose 1.35% while the FTSE MIB index in Milan was 1.60% higher.

Looking at local markets the good news flowed into overnight trade on the Syndey Futures Exchange with the SPI 200 futures trade the March contract is up 24 points to 5229 bid.

On FX markets the US dollar was stronger across the board. Euro has fallen 0.57% to 1.36 and is resting close to important support.

Whether you like technicals as a trading input or not there is no denying that other traders watch them and as a consequence they are important levels.  Such is the case in Euro at the moment which managed to hold onto support again last night but while the market is going nowhere when we add the moving averages and MACD the chances of a break lower must be rising.

The trendline today is 1.3581 but lets say a break of 1.3560 is required to see a deeper fall for Euro.

GBP lost 0.44% to 1.6363 while the US dollar gained 0.69% against the Swiss Franc to 0.9086. The Yen was under a little pressure too losing 0.36% as USDJPY rose to 104.57 while the Aussie dollar has fallen quickly from favour trading down to a low of 0.8885 before recovering to 0.8914 this morning for a loss of 0.57%.

As we noted yesterday the break of 0.8940/50 opened the way for the Aussie to fall further and we saw a low of 0.8885 overnight. This is getting back toward the support zone in this little diagonal box the Aussie has been trading in since the low around 0.8820 over the holiday season.

The key level to watch on the downside/support zone is 0.8850/60.

On Commodity markets the big news was a massive draw in crude inventories reported by the EIA in the US. The market was expecting inventories to fall by 700,000 barrels but the EIA reported an incredible fall of 7.65 million barrels. Naturally Nymex Crude traders had to cover shorts and Jan contract bounced 1.91% to $94.36.

After  a draw like we saw in crude stocks as reported by the EIA over night there was hardly any option but for prices to rise as fundamental shorts covered inducing technical traders to do likewise. The question now is whether Nymex Crude is headed back higher or whether this is a bull trap in a market that is heading lower.

First things first – I have been expecting a break lower but it hasn’t come and while I’m not trading crude at the moment I have to admit the strength has been a little surprising. But given the view on lower crude was based on a weekly outlook my trigger for entry – as written here – was a close at the end of  this week below the trendline.

$95.50 is key short term resistance and if that gives way the techs suggest a test to the top of the down channel and the 200 day moving average around $98.20. But it has to give way first and I’m still very interested in how we close this week but I won’t get rhetorical on this – let the market tell us where it’s headed

Gold was 0.57% weaker on the back of US dollar strength while copper rose 2 cents to $3.40 lb. On the Ags corn lost 1.22%, wheat fell 1.99% while soybeans rose 0.84%. Bitcoin sits at $935.

On the data front today ion Australia we get the employment data for December. The market is loooking for a rise of around 10,000 and unemployment of 5.8%.  Employment lags but lead indicators suggest it might do better in the months ahead.

Tonight we see German and Eurozone CPI which will be very important for ECB and thus Euro expectations. US CPI later in the night is equally important for Taper expectations. The Philly Fed index is out and  and the market will also be watching the TIC flows to see what foreigners are ding with US assets.

Have a great day and good hunting

Greg

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