Vantage FX | Aussie rallies, Gold looking for bottom and Euro surges | 17 April 2013

April 17, 2013

There was a huge squeeze in Gold and Silver over the past 24 hours but that’s all that was as they fell back after hitting fairly obvious targets for the selling to re-emerge.  Stocks in the US however did much better on the back of better than expected data in the US but in Europe the weak data continued. Strangely though Euro has roared higher taking the Aussie with it.

Looking first at the dataflow the ZEW economic sentiment survey in Germany had a huge miss falling from 48.5 to 36.3 and way way below the 42 expected. The current situation part of the survey also fell heavily from 13.6 to 9.2 while the Eurowide sentiment survey also tanked from 33.4 to 24.9. In the US it was a different story however with the Housing Starts release showing a bigger than expected jump of 7% in March against 1.4% expected. Industrial production was also higher up 0.4% against expectations of a 0.2% increase and capacity utilisation up a smidge as well.

So the US got its lead over Europe’s economic growth outlook confirmed and reports by Goldies, Coke, Johnson and Johnson and Blackrock – all big names – showed that profits were stronger than expected. After the bell yahoo has reported better profits also but Intel disappointed.

In other important economic news the IMF has cut its forecasts for a large swathe of countries with its release overnight. Global growth is expected to be 3.3% now not 3.5% and we’d suggest this will come down further as 2013 proceeds. Europe is expected to contract but Japan got an uplift in expectations. The chart below highlights the expectations graphically.

All in all though with gold off its lows the preconditions were there for a US stock rally and at the close the Dow finished up 158 points or 1.08%, the Nasdaq rose 1.51% and the S&P rose 23 points or 1.46% to 1575. In Europe as noted it was a different economic and market story with the FTSE down 0.61%, the DAX fell 0.38%, the CAC dropped 0.66% while in Madrid and Milan fell 0.81% and 0.61% respectively.

Turning to gold it made a new low for the run at $1320 yesterday morning early Asian time and eventually overnight rallied to a high around $1400 before falling back to $1368 oz as I write this morning. Silver managed to rally all the way to $24 before dropping back to $23.39 as we write this morning. Both of these moves were fairly obvious levels to attack and then find selling as we noted on Twitter yesterday afternoon in a conversation with an old colleague.

But the more interesting question is where to now? Is the gold low a sustainable one? Are the moves in stocks sustainable?

The reality is that the situation remains fluid and it is important to not that instability and big moves like we have seen in gold beget increased volatility for a time. The $1320 low is just $8 from the very important $1312 we identified in Yesterday’s Gold outlook – for the moment near enough is good enough as the level is less than 1% off the key support and we continue to respect this level unless or until it breaks. It is now for the price action to tell us where to next . For the moment though as you can see in the chart above Gold should hold above yesterday’s lows.

Euro is the interesting one though – it has no right fundamentally to be rallying yet it is and it has. I saw a prominent analyst raging against non-fundamental moves in FX yesterday particularly the Aussie characterising the moves as a short squeeze implying these moves were wrong. Let me say clearly technicals are fundamental if you are trading. You may not believe in them and you may like to anchor in fundamentals but if you do not watch technicals and market positioning as part of your process – even if just because you know others are watching them – then you should donate half your account to charity and put the other back in the bank. You’ll still be 50% better off than if you trade and ignore technicals.

So the Aussie rally was equally easy to call yesterday afternoon if you are using you tech’s as you can see in our tweet from that time. The Aussie high this morning has been 1.0389 and the Aussie Yen high was 101.39 so far. This is not to say we are gurus or anything like that because that could lead to Hubris but its just an indication that whatever your view you need to include price action not just fundamentals in your trading toolkit.

This is an important point to make because in yesterday’s note we said that “Looking at the price action in the Aussie now and it looks more likely than not that the Aussie is going to test the 1.0250/60.” yet a few hours later we had changed our mind and went long at 1.03353.

This was based on our view of the one and 4 hour charts and as you can see in the chart above the Aussie is now approaching our FMA which comes in at 1.0403 at the moment so we’d expect this to be resistance but a break would open the way for a run to 1.0440. We’ll see the lower level would have to break first.

On other markets USDJPY continued its rally off our SMA and the previous box and sits at 97.65 this morning. Some further rallies might be expected today. Crude was higher and Corn, Wheat and Soybeans rose 2.63%, 1.33% and 1.04% respectively.

Data

CPI in New Zealand and the Westpac Leading Index in Australia before a fairly quiet data night and then the Beige book early doors tomorrow morning.

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