You would have been forgiven after seeing the massive 6% drop in the Nikkei yesterday to expect to walk in today after a night of equity market carnage and it might have gone that way but for an unexpected dip in jobless claims and much better than expected retail sales in the US.
On FX markets the data helped the US dollar claw back some ground against the Yen but it was the Aussie dollar that was the key mover rallying more than 2 cents off the low of yesterday.
Commodity markets were mixed and US 10 year bonds rallied 5 basis points which makes no sense given the data.
Aussie dollar roars
I made the easiest 50+ points I’ve probably ever made in the Aussie Dollars rally up to 0.9520ish after the slightly better than forecast employment report yesterday as I sold and then it dropped back into the 0.9430 region. But once again as Europe entered the fray the buyers re-emerged and it currently sits at 0.9617 as I write early doors Friday.
What was different last night and what suggests that the Aussie might have a significant further up-move after a consolidation in Asia today is that the sellers didn’t knock it back when the Euro came under pressure last night nor have the knocked it back yet. It speaks of a market that might be, we know the specs are, a little or a lot short on a daily time frame and suggests a market that now needs reasons to sell as opposed to reasons to buy which has been the modis operandi for the past 3 weeks.
One thing I will say and that I find very interesting about the price action, or at least the persistent buying since the low earlier this week is that I may need to reconsider whether if markets go pear shaped, especially if emerging markets are or have joined the rout, whether the Aussies recent safe haven status doesn’t by default come back.
It’s worth thinking about even if it would be very counter-intuitive in a market rout usually.
Anyway to the charts and just like gold before its big crash the Aussie may be mapping out a long term decline for the moment and may have found support at the bottom of what is becoming the channel as you can see in the weekly chart above. If we assume this is the case and if we look at the Dailies (chart here) then there is now a fair chance of a further rally using my usual process with a target of 0.9752 with an outside chance of 0.9885. On the day moves back to 0.9557 are likely to be supported.
Yen roars and Euro recovers from early weakness
With the Nikkei down more than 6% it makes no legitimate reason for the Yen to be stronger and at some point this relationship will break down as the market figures out that the Nikkei and Japan are mere shadows of their former self. But for the moment the Yen’s strength is probably the key reason that the Nikkei is under pressure along with questions about the efficacy of Abenomics. It’s a messy time and a very uncertain one in the lead up to the FOMC and BoJ Governor Kuroda’s comments yesterday that “Markets will gradually calm down” was hardly encouraging for Japanese investors.
So to see USDJPY down at 94.84 and to see it there after making a low overnight of 93.78 after a high of 96.08 yesterday is interesting an another example that Mandelbrot was right and volatility clusters.
As you can see in the chart above the USDJPY sell off has now satisfied, or within 20 pts anyway, what I consider to be a “Usual” or normal retracement of 38.2% which is of course a key Fibonacci level. We could be in for a big rebound but it is too early to tell and a move through last nights low of 93.78 and the “actual” level at 93.60 would be a sign of a deeper move. I don’t expect this level to break at present.
The Euro had an interesting night trading from a high yesterday afternoon around 1.3390 to a low of 1.3278 and it finds itself back at 1.3373 this morning essentially unchanged on the day and looking very strong. The pound was stronger trading ONLY (note irony) 90 point range for a gain and it sits at 1.5691.
Nikkei’s weakness fades as Stocks like the US data
Gee whiz it looked like it might be an ugly night in late Asian trade as the Nikkei was down 6.35%, Hang Seng off 2.19%, Shanghai of 2.84% and Europe walking in weaker down more than 2% in many markets. But the better than expected jobless claims which dropped 11,000 from expectations printing 334,000 and the big rise of 0.6% in Retail sales for May against expectations of 0.4% saw stocks rally all day dragging Europe out of the Doldrums.
So at the close the FTSE was up 0.09%, the DAX down 0.59%, the CAC up 0.11%, the FTSE in Milan up 0.57% but stocks in Madrid fell 0.64%.
In the US the Dow closed up 181 points or 1.21% at 15176, the Nasdaq up 1.31% and the S&P 500 rose 23 points or more than 1.4% to 1636.
The chart above of the S&P 500 daily shows that it penetrated but rallied back above important support as shown by the trendline (if you would like to see how it looked yesterday afternoon in Asia the link is here). What you can also see is the low of 1597 (VantageFX MT4 pricing) was also the low last week so a break of the line and 1595 would be a big move if it comes now.
Nymex crude up again rising 0.89% to $96.73 bbl but Gold, silver, and Dr copper were all lower falling 0.35%, 0.98% and 1.24% respectively.
In New Zealand PMI and Food Price Index are released before inflation and employment data for the Eurozone as a whole. PPI is due out in the States and then industrial production and capacity utilisation.
So an interesting slide into home plate for the week over the next 24 hours without any real macro catalyst which implies last nights moves might continues.