Another interesting 24 hours on FX markets with the Euro under pressure once again and the Aussie breaking higher and closing in on the target levels we set after the employment report around 1.0512. Stocks in Europe were mixed with the periphery still realing from the impacts of the Cyprus bailout while the UK and German markets did better.
In the US it was the strength of Durable goods that saw stocks accelerate higher from the get go with goods purchases up 5.7% in February against expectations of a rise of 3.8%. Interestingly though the ex-transportation number showed a fall of 0.5% versus expectations of a rise of half a percent. Other good economic news in the US was the Case Shiller house price index which is now up 8.1% yoy for January. This is better than expected and in a separate report I saw this morning the Fed said that home prices were up strongly last year with the increase in US home equity on aggregate rising 25% last year. This will no doubt contribute to the recovery in the economy but what the US needs is jobs which hopefully will be coming down the pipe sometime soon.
We say hopefully because as has been the case recently the data in the US is not universally positive nor too strong and last night the Richmond Fed Index printed at 3 down from 6 last month and 8 expected. But the good thing for stocks in this still uncertain outlook is that the Fed will be in no rush to take back stimulus.
So at the close the Dow was up 112 points or 0.78%, the Nasdaq rose 0.52% and the S&P 500 was 12 points or 0.78% higher to 1,564. In the context of the S&P 500 chart yesterday the highs are still being constrained by the top of the uptrend channel so we don’t expect the S&P to roar higher any time soon as this roof line resistance seems and has been quite strong for some time now.
In Europe it was a tail of the north and the south as it seems to be increasingly over the past few years with the Cypriot “bail out” putting more pressure on the Spanish and Italian stock markets. Spanish stocks slipped 1.84% while Milanese stocks fell 0.95%. In the UK stocks were 0.32% higher, the CAC rose 0.52% and the DAX rose 0.12%.
On the topic of Cyprus our 12 year old Eurogroup leader Jereon Dijsselbloem like a scalded child still trying to prove he’s right comment that there were no bank runs in the Eurozone overnight. That is not the point is it the money that leaves the Eurozone will do so electronically because it is the above €100,000 amounts that are decidely at risk. I’m not going to comment on his comments every day but this type of comment and the obvious need to be proved right is dangerous for markets and the Eurozone – he should be sacked.
Anyway Cypriot banks remain closed, capital controls will be in place and students are in the streets.
Looking to FX markets the Euro remains under pressure but has not yet broken wide open. Technically there was a chance that the move below the 200 day moving average could have been a subtle catalyst to further weakness. Euro is still around that level after trading down to a low of 1.2827 but sits midrange for the day at 1.2854 as we write.
The Aussie just keeps keeping on and while there may be no bank run in the EU at the moment whatever the reverse of that is is clearly pushing the Aussie, NZD and CAD higher as investors buy safety from any chance of EU haircuts. At least that is the dynamic that seems to us to be in play – otherwise Gold would be higher not back at $1600. Obviously also as we see in the spike over the past few days in Nymex Crude the durable goods data and perceptions about US growth are helping but we think its that Australia is the least ugly in the global beauty parade that is FX markets.
Looking at the 4 hour chart above you can see one of our favourite set ups has played out nicely in the past few days. That is a move, a pullback to Fibo support and then a break which runs to the 1.382 level of the original move. But the question of course is where to now? On the dailies there looks like there could be a little more upside yet the high of 1.0497 was only 15 points shy of the 1.0512 we tweeted as our multi week target after the employment data so we are getting close and we have also been suggesting the 1.0512/32 region should be solid support. On the shorter term charts we’d expect some sort of pullback unless or until last nights high gets taken out.
Elswhere USDJPY sits at 94.48 raising the spectre that the break of the trendline two nights ago was a false break. Break out traders will still be short but for the moment it is hanging in there. We are still targeting lower levels. USDCAD was poll axed overnight and it looks like it mght want to head back toward 1.0060 region.
On Commodity markets Nymex crude was sharply higher up 1.51% to $96.24 Bbl. Gold is struggling a little for traction and sits around $1596 oz while Silver fell 0.49% to $28.67 oz. The Ags aren’t trading as a bloc anymore the way they were for so much of the past 6-12 months. Wheat is up 0.58%, Soybeans up 0.68% but Corn fell 0.58%.
RBNZ Business Confidence and the RBA Finsancial Stability review are out today. This evening the Gfk Consumer Sentiment survey is released in Germany before French GDP, Spanish retail sales and Current account. Euro area consumer and Business confidence is also out. In the US pending home sales is the focus.