Vantage FX | Aussie drops below 0.99 can support hold? | 14 May 2013

May 15, 2013

Here is an interesting stat for you – according to MarketWatch the Dow Jones Industrial Average rose for the 18th Tuesday in a row.

As I say that is an interesting but also essentially useless stat – indeed who keeps stats like these? Maybe you do if you are testing a trading system called “buy Tuesday”. However what is interesting is the fact that MarketWatch has felt the need to hone in on this obscure piece of information which suggests that no one has any idea what drove stocks in the US and Europe to fresh all-time highs last night. Indeed Business insider is reporting that stock futures were down but then a Fund Manager and Bull David Tepper popped over to CNBC and gave a bullish prognosis which turned things around.

Perhaps they are right because if you look at a chart of US stocks and it is onward and upward from the get go.

Either way it was new all-time highs with the Dow up 0.82%, the Nasdaq up 0.70% and the S&P 500 up 0.99% to 1,650. The European performance was lacklustre until the US market opened and by the close the FTSE was 0.82% higher, the DAX was up 0.72%, the CAC rose 0.53% while in Spain and Italy stocks rose 0.20% and 0.84% respectively. Data out of Europe doesn’t support stocks higher, not even close. Data last night on Industrial production, consumer prices and the ZEW economic sentiment survey speaks of more cuts by the ECB and a still moribund economic future for the EU.

But stocks at this level makes sense when viewed against the prism of the Fed’s balance sheet buying – something which will be the topic of our FREE weekly on Saturday which you can sign up for here.

What is really interesting is that Currency traders in FX land do seem to get the economic reality even if stocks traders don’t and the emerging trend of US dollar strength across the board continued overnight with the Aussie Dollar, GBP, Euro, Kiwi and Canadian Dollar all falling. Equally Nymex crude was down, as was Gold and Dr Copper fell 2.13% overnight. All of this points to USD strength and a trend that has got some serious longer term legs we think.

Having said that though both the USDJPY and AUDUSD rates are nearing important junctures in their trends. Looking first at the Aussie dollar the 0.9857 target is getting closer with a low overnight of 0.9872 on the back of the US Dollars strength. From early doors yesterday morning a bid came back into the Aussie driving into the 0.9970/80 region until Europe came in and took it up to an brief high of 1.0003 before the sellers rushed the bids and knocked the Aussie back 20/30 points in the blink of an eye.

As you can see in the weekly chart above the AUD is getting a little oversold sitting at 0.9888 this morning and has support in this zone but equally the Australian treasury’s ridiculously panglossian expectation that nominal GDP will be 5% in a couple of years is simply not credible given their recent inability to forecast the nominal world and so this is going to add weight on the Aussie as well because one thing we have always had is credibility with offshore investors. The Government and Treasury’s forecasting ineptitude over the past few years and the emerging weakness in the economy – or continuing I would say – is going to hurt sentiment toward investing in Australia and thus the AUD. That is not necessarily a bad economic outcome for Australia though because a bit of Aussie in the low 90’s would be economically welcome but it does reinforce the overall selling pressure on the AUDUSD.

Yesterday we noted that I might switch into short AUDJPY from short AUDUSD. I did that but unfortunately the USDJPY rate hit another multi-year high overnight trading up to 102.40 and it sits at 102.31 as I write. It is firmly in the resistance zone on a number of measures now and a break of the 102.70/1.0350 zone would be decisive.

The trend is clearly still up and clearly still strong – when and where the usual consolidation might come is hard to tell given the USD is getting stronger across the board but with all the convergence of resistance 1 Yen or so higher now is a reasonable time for a pause. But it’s a bull market so only the bravest or most active traders might go short.

The USD’s strength was also obvious in the Euro and GBP’s falls both of which look to us like they are going to have a round trip back to recent lows. As noted yesterday the initial target for GBP was 1.5179ish and we are just above 1.52 and now expecting a move under 1.51. Euro wise a break of 1.2872 suggests 1.2475.

Turning to commodities as we wrote yesterday we think Gold is on the way down again after not being able to breach the $1,475/80 region – abreak of $1,417 opens up $1385. Crude fell 1% to $94.22, Silver was 1.33% lower and as noted above Dr Copper is down 2.13%.

Data

New Motor Vehicles in Australia and then some big, very big GDP data out of Europe tonight with German, French, Italian, Portugeuse, Greek and Eurowide GDP. In the US the key releases are NY Empire Manufacturing index, Producer Prices and Industrial production.

So we have some meaty releases to sink our teeth into – Good trading.

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