Last night was all about the US dollar as the break of 100 against the Yen was a catalyst for a turn in stocks and the Euro and Aussie getting absolutely hammered. What drove the move which came after lunch New York time is difficult to know and different rumours have filtered through the market.
We prefer to simply look at the price action and note that in the Aussie in particular a move lower is simply the path of least resistance. The USDJPY move has been coming for a while and while we always trade the range/box until it breaks it is the break up and through 100 which is decisive and would have dragged longs into the market. Positioning is such in Yen shorts that the past few weeks has given the Yen bears fresh space to take USDJPY higher. It’s true we didn’t see this one coming, certainly not in the timing overnight, but a break is a break and traders will be buying now.
Based on the usual Fibonacci projection from the break of the range a target of 1.0250/1.0350 seems reasonable.
Turning to the Aussie Dollar and it is important to note that we saw something different for the first time in a very long while yesterday after the employment data. That is after the bigger than expected rise of 50,000 in employment the Aussie spike from 1.0165 (BoK cut and Chinese inflation door saw it spike down just before the employment data) to a high of 1.0253. That is nothing new but what is new is that the spike brought sellers out of the wood work and it was clear that someone sat on it in the 1.0240’s. Noticing this we sold some for a bit of fun but given the low overnight was 1.0044 we exited way too early.
As you can see in the chart above Aussie has broken the range and we are now looking for a test of the trendline and 200 week moving average which comes in around 0.9850.
Yesterday’s data was strong and drove AUD up to the 1.0250 region but as the NAB wrote yesterday afternoon it is so volatile that it should be ignored. The outcomes of the past 3 months simply underlines why we don’t trade this release – it is simply too hard to forecast and too volatile relative to the normal range of forecasts so on that basis anything can happen with the release. Just something for traders to keep in mind going forward – preempting the Australian employment report is fraught with danger.
We are still short Aussie for our lifestyle position and will stay that way for a little while given that it is still losing ground on the crosses with the performance against the CAD continuing to be for us a lead indicator of the changing sentiment for the AUD.
Looking at the Euro it is
Turning to the Euro and it was the US dollars strength that has driven it back down to the bottom of the 1.30/32 range with an overnight low of 1.3009 after a high of 1.3177. The range remains the play and as you can see in the chart below the trendline remains intact for the moment. But a break of both the range, the trendline, which comes in at 1.2992, and the 200 day moving average at 1.2982 would be decisive.
It is an interesting outlook and really does hinge on the outlook for the USD and particularly USDJPY. So we will take a lead from those moves.
In the UK the decision by the BoE to keep policy unchanged had little impact on the market but GBP reversed lower with the US dollars move. We were wrong for a day but it feels like GBPUSD is heading lower.
Looking at the stocks as you can see in the chart of the S&P 500 things were looking good with Jobless claims printing another 4 year low of 323,000 until just after lunch which is when USDJPY broke higher and the Aussie and Euro got hammered. Equally financial shares came under pressure around this time and Apple also came under pressure.
It wasn’t a huge sell off by any stretch of the imagination with the S&P only down 0.37% of 6 points. The Dow was 0.15% lower and the Nasdaq fell 0.13%. In Europe the FTSE and DAX were marginally higher up 0.14% and 0.16% respectively but in France, Italy and Spain stocks were down 0.69%, 0.95% and 0.28% respectively.
Looking at Commodities we see the US dollar’s move had resonance here as well with Nymex crude off 0.68% to $95.96 Bbl. Gold and Silver were also a bit lower trading at $1455 and $23.60 respectively. Dr Copper was off 1.16% but Corn and Wheat were both up sharply with near 3% moves but Soybeans lagged only rising 0.8%.
The RBA’s quarterly Statement on Monetary Policy is released this morning and will be interesting reading to see what was behind the move to lower rates this week and what might be in prospect. this might introduce a bit of volatility that would otherwise be absent on what should be a fairly quiet day before German trade data tonight.