- The USD reversed sharply overnight after early strength on the back of Jobless Claims (320,000 lowest since October 2007) evaporating as the dam burst and selling with aggression emerged after the fall in the Empire Manuafacturing index (8.24 v 10 expected and 9.46 last) was amplified by the collapse of the the Philly Fed index (9.3 v 15 expected and 19.8 last!)
- Gold (+2.07%, $1364 oz), Aussie (0.9137 +0.18 but low 0.9057), Sterling (1.5641, +0.92%), Yen (97.21 USDJPY -0.92%) and Euro (1.3349, +0.72% and low of 1.3205) all broke higher simultaneously from what had been a pounding by the US dollar in early trade. Very interesting move and I’ll discuss below.
- The reversal in the dollar was not mirrored on stocks which were under pressure from the get go and recieved no lift from the Philly Fed and stocks in the US closed not far off their lows with the Dow down 1.47%, Nasdaq off 1.72% and the S&P 500 off 1.45%.
- In the UK the FTSE had a similar time to US markets closing down 1.59% mainly because of the strong UK data which showed retail sales up 1.1% versus 0.6% expected and now running at a 3% year on year rate. But across the Channel continental European stocks closed off their lows. The DAX fell 0.74%, CAC 0.52% and IBEX35 0.58%.
- On rates market it was a sea of red also with US 10’s at 2.77%, Bunds up to 1.89% and Gilts up to 2.69%. Not pretty.
- Commodities were interesting with Gold higher, Silver on a tear up 5.5% to $22.99, copper was up a little more to $3.35 lb, the Ags were again volatile with Corn up 3.55%, Wheat up 1.11% and Soybeans up 1.61%. On the good news front though breakfast was cheaper with Coffee, Sugar, OJ and Hogs (lean of course) all lower.
On the data front Korean PPI is already out printing flat for July and -0.9% year on year and it’s the only big thing in Asia before EU wide current account and CPI tonight and then US building permits, non-farm productivity and unit labour costs to round out the week.
What drove the USD and stocks lower last night
Really interesting that the US dollar was so strong early last night but then collapsed as you can see in chart at right from my VantageFX MT4 platform.
The Aussie, Euro, Sterling and Gold were all pressured early but then reversed sharply and looked like they triggered covering on the other side of the trade such was the emphatic move.
Now while we can blame the Philly Fed index’s collapse and probably have some strong ground on which to base our view I wonder if I have been completely wrong in that a Stock sell off, which is occurring, should be good for the US dollar because clearly it was not last night.
Indeed Marthew Walter writing in the Wall Street Journal this morning says,
“The near-uniform move back and forth between risky assets and safe havens, known as the risk-on/risk-off trade, was nowhere to be found Thursday. Strong data in the U.S. and U.K. left traditional havens such as the dollar, Treasurys, German Bunds and U.K. Gilts out of favor. But the assets investors usually target when they’re feeling more bullish about growth, such as the higher yielding Australian dollar and equities, also fell.”
Which is true and the TIC data that was released last night for June showed that US assets are being sold by foreigners further supporting the idea that something is changing in respect to the US and investors view of assets.
I think where I might have it wrong – if I do, one swallow doesn’t make a summer and all that, is that if the Fed is going to taper and if this is going to put pressure on US equities and Bonds then there are capital losses ahead for the owners of those assets. So it would make sense for those owners, particularly if they are foreigners, to start lightening their load and selling US assets.
This is very different to the paradigm that says the taper is good for the US dollar to which I have had a fully paid up subscription – a season ticket if you will – and it is something I need to ponder and then discuss in my free subscriber weekly tomorrow morning.
Either way though stocks are under pressure as I noted yesterday and they clearly broke down and through the support I showed on the chart yesterday and as you can see below.
The target is fairly clear now for a retest of the trendline which comes in today at 1605. 1645 is the 38.2% retracement support of the last upmove with further support at 1628 and 1610.
Currencies are noise – caution warranted
I got stopped out twice on an Aussie sale in the past 24 hours once because I got in too early and the second time because my stop was in the wrong place by about 2 points. That was in one account while in the other more aggressive account I had wider stops and managed to sell and buy back on the run down.
Now not for a minute did I think the Aussie was going to trade the range it did yesterday which was a low of 0.9058 and a high of 0.9188 otherwise I would have had my second account take profit way lower than it was. But the key here for traders is that we are in a very volatile period where the ATR for Aussie, Euro, GBP, Gold, USDJPY, NZD, AUDJPY and so on are all at the highest levels they have been in some time.
For me this translates and will flow to smaller positions for a bit so I can run bigger stops and start to rebuild from a pretty bad week on the A account.
My suggestion is that perhaps other traders might want to do the same for a bit until things settle down a bit – there is more than 30 days until the Fed’s meeting in September and almost every data release in the US is going to be a referendum on the Taper and its timing.
Have a great day, Tin hat on, and good hunting