Vantage FX | Aussie and stocks reverse, watch GDP today | 5 June 2013

June 5, 2013

Recap

An interesting night last night without the big data catalysts of the previous evening some of the previous day’s Topsy Turvy trading gave way to something more akin to what I’d say recognises the economic reality. Stocks in the US came under pressure, the Australian Dollar got smashed but the USD had a mixed night up against the Yen and loosing ground against the Euro and the Pound. Gold was down but Copper rose.

Stocks

Perhaps it was just that for the last 19 Tuesday’s Wall Street had finished higher and people were front running the move on Monday so there was give back last night – who knows but at the close of play the Dow was down 76 points at 15,178 after a high of 15,305 for a loss of 0.50%. The S&P fell 9 points to 1,631 or 0.57% and the Nasdaq was 0.59% lower. There was of course more talk of Tapering with the Kansas Fed Governor the latest to voice he desire to see a reduction sooner rather than later.

In Europe it was catch up on what they missed the day before after they closed with the FTSE up 0.52%, the DAX rose 0.12%, CAC rose 0.14% and the Milanese and Madrid stocks markets were up 0.45% and 0.95% respectively. Who would want to be a European stock trader – always a day behind.

On Stocks, noted Stock Guru Byron Wein was on Fox Business overnight talking about his outlook for stocks and I think what he says is worth noting, I’ll post the video later, and even though it accords verbatim with my own view this is not confirmation bias just me quoting someone better known and with more gravitas than myself. Anyway Wein said,

The market has already given you a full-year’s performance and we’re only at the beginning of June. It’s unrealistic to think the market could continue to go up at the rate it’s gone up so far this year. There’s bound to be a correction.

You have earnings problems, you have the economy slowing, you have all the economies around the world slowing, demand for U.S. products are slowing, so my view is it’s time to be cautious.

This is an interesting  way to think about it – the market has already given you the years return and is due for a retracement – that is what happened last year and given my technical view I think fits with the retracement I am looking for in the S&P and other Stock Markets.

1591 seems a reasonable first target and if this breaks then 1545 is the next target – the former is only 2.5% away and the later only 5.2% so hardly shocking.

Part of the reason for the late weakness in the US has been laid at the feet of Nikkei futures falling back in US trade but as you can see in the chart below it is pretty clear that the Nikkei IS breaking down now.

Australia, Aussie Dollar,  RBA and GDP

The behavioural stuff of economics and markets is one of my core strengths I think and we got a very clear view of how sentiment and behaviour toward the Aussie dollar has changed over the past 6 weeks. Having called for a move back to 0.9780 last week as a garden variety retracement for the Australian Dollar we saw that achieved on Monday night. But there was absolutely no follow through yesterday in the lead up the RBA’s meeting.

Then of course in one of the briefest RBA statements in ages the Governor articulated that he felt rate cuts were still working through and as this word cloud shows the key message that came out was of consistent growth.

But AUDUSD traders heard two things it is clear – one, that inflation remains low and is not an impediment to further cuts and two that the Aussie Dollar is still high even though it has fallen relative to moves in exports. Which knocked the AUD down to a low of 0.9606 after a high of 0.9771 yesterday.

So we know this is still a bear market for the Aussie and it reinforces that sellers are coming into the market to meet short term rallies regardless of the fact that the specs might be structurally very short.

And both bulls and bears might get a chance to play today with the Australian Q1 2013 GDP being released at 11.30 today. TThe Majors seem to be looking for a growth rate of around 0.7-0.8% for the quarter and 2.7/2.8% for the year which is bank on what the market is looking for. Net exports will have a very positive contribution so it is going to be hard to get a bad number it seems and if GDP is weak then this is a very big sign that Australia is slowing and slowing fast. So the chances are GDP might surprise to the upside but the impact on the market will be less than weakness given current market sentiment.

Looking at the chart above you can see a huge rally followed by a big retracement the next candle, not exactly unprecedented but certainly very unstable and as I note above it reinforces the notion that rallies are going to be met with selling. Key levels to watch today given that I am going into the number flat are 0.9525 on the bottom and then huge support at 0.9400. Topside it is 0.9685/95 then 0.9780/90 and 0.9870 which is the 38.2% retracement of the big fall.

Other FX markets

The Euro is breaking up and through the top of the down trend channel that has constrained it since earlier this year sitting at 1.3085 this morning- I’m a bit out of touch short term on the Euro as it has rallied back from the mid 1.28 region for an impressive move as the US growth data has disappointed recently. It could rally as far as 1.3260 and still be consistent with a break lower – perhaps it is just mapping out a 4-5 big figure range in which to trade as both the US and Europe disappoint in alternate measure.

USDJPY climbed back above 100 to a high of 100.41 but is back at 99.96 today with support about 100 points below – the Nikkei/Yen dance is going to be interesting over the next week or so.

GBP is flat on the day at 1.5314 after a 1.5271/1.5342 range. USDCHF traded 0.9448/0.9520 but the USD gained on the CAD rallying from a low of 1.0271 to a high of 1.0363 and sits at 1.0340 up 0.63% this morning.

Commodities

Nymex Crude is up 0.41% at $93.83 Bbl, Gold is down 1.03% or $14 to $1,398 with silver off 1.39% to $22.33. Copper rose 1.14% and corn was 0.80% higher while Wheat was flat and Soybeans fell 0.26%.

Data

GDP in Australia and HSBC Services PMI in China and then onto Europe for Markit Services PMI and European Q1 GDP and retail sales tonight.

In the US it is Mortgage Apps, ADP Employment Survey, non-farm productivity, factory orders, ISM non-manufacturing and the Fed’s Beige book.

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