Vantage FX | AUD reverses from range top – biased lower | 30th November 2012

November 30, 2012

Stocks in Europe raced out of the gates and were in positive territory all day following on from the better tone across most of Asia but the US had  a more volatile session after Republican House Leader was less optimistic then he had been the day before about the Fiscal cliff.

When its all said and done its all said and done – the problem is we still have 32 days of this Fiscal shuffle and it continues to be frustrating because nothing is done. But there is little anyone can do about it other than what we noted yesterday which was essentially to be careful with trades.

On the data front there was a revision to the Q3 US GDP data from 2.0% at the advance estimate a month ago to 2.7% released overnight. Much of the revision was however an increase in the contribution of inventories to growth which changed from -0.1% at the first estimate to a contribution of +0.77% to last nights 2nd update. So on the face of it the higher number looks good but then we note that personal consumption was revised down from 2% to 1.4%. These are big revisions and it is easy to see why the Australian Bureau of Statisitics waits an extra month or two after the end of the quarter before it releases our GDP so that it can have a reasonable stab at GDP growth and hope to be somewhat close to the real growth number.

Elsewhere on the economic front German unemployment rose 5000 with an unemployment rate of 6.9%. Eirozone business climate was better than expected at 1.19 versus -1.60 but industrial confidence although better than expected was still negative 15.1 and services sentiment -11.9. Turning back to the US data jobless claims were marginally worse than expected at 393000 last week but pending home sales jumped sharply up 5.2% in October month on month against expectations of 0.8% so housing certainly looks to be continuing its recovery although the Kansas Fed manufacturing index was -6 versus expectation of -3.

Stocks

In Europe it was a positive day from the outset as the better tone in most of Asia filtered through to Europe and every one of the European markets that I follow ended up and for the most part strongly higher. The FTSE was up 1.15%, the DAX was the worst performing market I follow but even it rose 0.78% and the CAC was 1.53% higher. Madrid rose 1.68%.

In the US with 35 minutes to go the S&P 500 is up 0.34% to 1414 which is about mid range for the day’s trade. The Dow is up 0.19% and the NASDAQ is up a much stronger 0.62%.

In Asia Shanghai continued to fall dropping another half a percent as its technical outlook remains negative.  The Nikkei was 0.99% as was the Hang Seng while the Kospi and the Straits times were 1.15% and 1.13% respectively.

FX Markets

Interesting night last night with the Euro climbing over 1.30 again but finding sellers up there  again. Euro made a marginal new high for this run at 1.3013 versus the 1.3009 recently. The pullback has not been too deep though as the Euro sits at 1.2971 up 0.16% on the day.

Technically it is very interesting as the Euro has now tried for 5 days in a row to close above the trendline that goes all the way back to early 2011 so tonights close will be very important for the longer term technical outlook being a week’s end.

Elsewhere on Global FX markets the USD did slighthly better against the Yen and USDJPY sits at 82.12 this morning up 0.06% after trading an 81.89-82.21 range – yawn! Sterling is up 0.16% to 1.6038 and it is starting to look more positive technically and a weekly close above 1.6063 would signal a run higher next week. The Canadian dollar is slighthly weaker against the US with USDCAD up 0.08% to 0.9925 but USDCAD is at risk of closing the week below its recent uptrend – so another important weekly close.

Turning to the Australian Dollar it was a more interesting night’s trade than probably most people expected given that stocks were up but the AUD was down sharply. Having made a high  of 1.0479 near the top of the range again AUDUSD sits this morning at 1.0425 down 0.48% against an S&P 500 that is up 0.50% as I write. Correlations are hardly ever constant but the performance of the Aussie dollar needs to be thought about.

I would make a couple of observations:

  1. If you cant break a range or hold a range break as happened this week in the AUDUSD then prices often naturally reverse as counter trend or range enforcers sell
  2. The expectation of an RBA rate cut next week has increased after this week’s data with about 77% implied expectation (I hate this metric but it is observable)
  3. RBA Board member John Edwards in the WSJ overnight made the obvious observation that there is an upper limit on how much offshore investors can buy of Aussie assets given portfolio limits which might also have knocked Aussie a little lower

Technically on the 4 hour charts it looks biased back toward 1.0405/10

Commodities

Silver is closing above the trendline we have been watching this week. Tonight is the important close given that this is a 15-16 month trendline so we’ll see. At the close Silver is sitting at $34.27 oz up 1.74% while Gold is higher at $1726 up 0.60%. Crude is off its highs for the day but still up 1.68% at $87.94 bbl – Crude is in a sideways trade at the moment even if the moves are large ones inter-day but it bears watching to see if thre is a break out sometime soon.

Datawise In New Zealand we get building permits this morning before a raft of Japanese data which could be market moving. Highlights are CPI, Industrial Production, PMI, housing starts, vehicle production and household spending. At 11.30 we’ll get the latest update on Australian private sector credit and then tonight German retail sales, French consumer spending and CPI. In the Americas Brazil is releasing its GDP  and budgetary position and in the US personal consumption data will be important.

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.

Catch me on Twitter @gregorymckenna or @FX_Global

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