Vantage FX | AUD at top of the range, Euro broken higher | 5th December 2012

December 5, 2012

While equity markets across the globe wait patiently for the outcome of the US fiscal cliff talks FX and commodity markets are pushing on with some important moves.

Euro was higher again and is on its way to test resistance at 1.3175. The Aussie dollar broke sharply higher after the RBA cut yesterday which as counter intuitive as that is speaks volumes about how the market was positioned on the day and gold got hit hard in Asian trade and is now back under $1700 oz.

Datawise overnight the Bank of Canada kept rates at 1% but retained a tightening bias – who can fault the world’s best Central Banker and the next BoE Governor but it still seems pre-emptive to be talking about Canadian rate rises anytime soon. In the US the New York ISM was on a tear rising to 52.5 from the 45.9 last month.

In Europe Finance Ministers once again failed to reach an accord on the banking union/supervision proposals but yields in Spain and Italy continued to rally along with the Milan Stock exchange which was up more than 1%. Peripheral European bonds have rallied hard since the dire weeks markets endured earlier this year and 10 year yields in Italy are now back to their best level in 2 years at 4.41%. Spain isn’t doing quite so well but yields on 10 years at 5.23% are at least at 9 month lows. Driving the better sentiment in these bond markets and in the Euro is the Greek debt buyback plan and the continuing reduction in chances that greece is going to need to leave the Euro any time soon.

Stocks

At the close European stocks were mixed with the FTSE closing at 5869 down just 0.04%, the DAX was flat at 7435 while the CAC rose 0.38% to 3580. In Madrid stocks rose 0.22%.

In the US with 48 minutes to go stocks have improved a little and the S&P is flat at 1409, the Dow is up 16 or 0.12% to 12981 while the NASDAQ is down 0.07%

In Asia the All Ords was the stand out of the bigger markets falling 0.62% after the RBA rate cut. The falls were across the board with materials down 1% and financials off 0.5%. The Small Ords dropped 1.1%! After a two and a half week rally the SPI 200 looks like it might be time for a bit of a consolidation 4495 would need to give way to trigger a deeper retracement. Elsewhere in Asia it was a bit of a hodge podge of moves. The Nikkei fell 0.27%, the Hang Seng rose 0.15%, Shanghai was up 0.78%  while the Kospi dropped 0.25%, Straits Times down 0.12% and the Jakarta was down 0.76%

FX Markets

Three big moves in FX markets in the past 24 hours. Euro has broken higher again and taken out the second of the major trendlines that was constraining it, the Aussie market seems to have been punting on a bigger cut and got caught short for a decent rally back to the range top and the decision by UBS to start charging for deposits has put some interest back into the USDCHF rate and EURCHF rate. 
Looking at the Euro first we can see in the chart above that the second of the two trendlines we’ve been watching has now been breached in the general USD weakness. As I noted yesterday the trend following side of my already has longs on and stops in placec but the subjective side of me is not getting too bullish unless or until I see a break of the recent range top around 1.3170.

For the Aussie dollar I have to admit I completely misread the market positioning yesterday after the resiliency that it had showed the previous night. I can’t believe that anyone who heard Glenn Stevens speech recently at CEDA could have thought for a second that the RBA was going to cut 50 basis points at 2.30 pm yesterday but as you can see in the 15 minute chart above after a short spike lower when the RBA mentioned the too high AUD the market ramped higher and has stayed higher, after a brief retest of the old trendline, for most of the night.

So the AUD is now back at the top of the range and sits at  1.0477 up 0.58% on the day. 1.0489 is the recent range top and and any further push higher will rely on extended USD weakness or a positive surprise to GDP to be released at 11.30am today. If 89/83 gives way the next level is 1.0535. I will discuss the Aussie and Cross outlook in more depth in the AUD Cross post later this morning.

Elsewhere USDJPY is retracing as I have been expecting and it is off 0.45% at 81.86. GBP has hardly moved at 1.6102 and USDCAD is down 0.25%.

Commodities

Gold got poll axed yesterday afternoon in Asia and sits at $1695 oz down 1.42% but it was nothing compared to silvers fall of 2.81% to $32.72 oz. As you can see in the gold chart below it now looks biased back toward the $1670 region at a minimum. 

Elsewhere crude rejected the trendline as discussed yesterday and is off 0.66% to $88.50 Bbl. Corn and Wheat were off 0.60% and 0.68% repsectively while Soybeans rose 0.02%.

Datawise In Australia we GDP which is always interesting straight after an RBA move so the market will be watching that closely. The market is expecting another rise of 0.6% for a 3.2% annualised return. In Europe tonight we get the Markit services PMI and then in the US we get a pointer to non-farm payrolls with the release of the ADP employment survey together with factory orders and the ISM non-manufacturing PMI.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

NB: Please note all references to rates above are approximate and should not be used for trade reference.

H/T to Global Macro Monitor for today’s toon picture

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