Vantage FX | Aussie crashes, Gold falls as global growth stalls | 16 May 2013

May 17, 2013

Data data everywhere and not a drop of growth.

We’ve gone with that as the opening sentence for the second day in a row to reinforce to our readers that the global economy is turning down again. We have noted recently that the pace of economic releases and their outcomes which were largely better than expected in the 10 weeks to the middle of March has largely reversed in the weeks subsequent and the outlook is souring.

Last night we saw jobless claims in the US jump to a six week high rising 30,000 to 360,000 while the Philly Fed manufacturing index plummeted from 1.3 last month to negative 5.2 in May and against expectations of a rise to 2.4. Housing starts were also lower than expected as was the CPI data, which balances out the bad news a little by reducing any pressure on the Fed to hurry to exit its unconventional monetary policy any time soon.

That is not to say that Fed officials aren’t contemplating a withdrawal or, as Richard Fisher opined yesterday in a speech, a taper in the program.

At the close the Dow finished at 15,233 down 0.28% on the day after it made a fresh intra day high at 15,302 earlier in the session. The S&P closed down 0.53% at 1,650 and the Nasdaq was 0.19% lower. In Europe the big markets of London, Frankfurt and paris less than 0.1% either side of flat. Stocks in Milan rose 0.29% while stocks in Madrid fell 0.47%.

Gold bugs won’t want to hear the news from Credit Suisse that they see the precious metal down at $1100 in a years time. As readers know we hold gold as nothing more than another market. We are neither gold bugs nor gold bears – we simply follow the price action and what out technical view tells us. But it worth noting that the Gold Bugs have recently changed tack to talk about the huge uptick in physical gold as a sign that gold must come back – even though the price is falling.

In simplistic terms this is naive in the extreme because the price is the price and whatever the physical demand the fact the price is falling says that that demand is being overwhelmed from selling from somewhere – even if its paper selling. But it would be disingenuous in the extreme to be bullish when the paper buyers are buying and evidence the price action that results as a sign of golds buggynesss and now when the paper buyers are liquidating to ignore them.

It is simply neither intellectually not tradingly honest.

The key reason for Credit Suisse’s view is that the lack of global inflation, indeed the fall that is still occurring  means that gold is an unnecessary hedge. We have  lot of sympathy with that and will be looking at global inflation in this week’s free subscriber newsletter due out tomorrow. If you would like to receive a copy in your inbox  please sign up here

Turning back to our current outlook and we’d say that on a very long term out look the recent lows are the key to gold’s immediate and long term future. We expect to see gold make a round trip to the recent lows at $1320 and expect there to be support there and down to $1300 initially. But there is a warning insofar as that the JimmyR moving average indicator we use has only just turned bearish so we still see further downside in time and would still be selling rallies.

Turning to the other big market mover the Aussie dollar briefly under 98 making a low of 0.9795 before “bouncing” to 0.9804 where it sits this morning. Yesterday I noted that because I was travelling I had cut positions but when I got to Brisbane I got short AUDJPY again and then switched that to short AUDUSD later in the day. So I am short that at the moment.

Part of the reason I am now short again is the big break of the weekly trendline and the 200 week moving average that occurred yesterday afternoon. Certainly we always respect channels and levels until they break and we had a target of 0.9857 in for a while now but the break of this channel opens the way for a move over many weeks to 0.9350.

Also if you are a fundamentalist the falling economic and inflation backdrop undermines the Aussie Dollar as a safe harbour and our own sinking economy just builds on that. If I look at our five key drivers we talk about that drive the Aussie they are negative as well.

  1. Interest rate differentials – closing, negative for the Aussie;
  2. Investor Sentiment – turned on growth, inflation and the Aussie, negative for the Aussie;
  3. Global Growth – Yuk, negative for the Aussie;
  4. USD – least ugly in currency land, negative for the Aussie; and
  5. Technicals – the chart above speaks for itself, negative for the Aussie

So I guess the message is the trend is your friend and catching falling knives is a dangerous strategy.

On other markets the Yen fought back again after the weak US data and we are of a mind to get short USDJPY somewhere soon, just waiting for the signal. Euro has to break 1.2840 which is the low for the past to days for it to kick lower.

On commodity markets crude and Dr Copper both rose, no doubt on the back of the slightly weaker US dollar after the data last night up 0.87% and 0.77% respectively. As noted Gold fell 0.67 but Silver has barely budged.

Data

Japanese Machinery orders, Chinese leading economic indicator today and then a fairly quiet data night for Europe and the US.

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