Vantage FX | Aussie weaker, Euro topping on stronger USD | 25 July 2013

July 25, 2013

Recap

  • The scene in global markets overnight was set by the flow of data. HSBC and Markit Manufacturing PMI’s over the past 24 hours dominated. First China (47.7) printed it’s lowest number in 11 months which knocked the Aussie dollar as as we rolled through Europe better prints in France (49.8), Germany (50.3) and the EU (50.1) were all higher than expectations and up on the previous month. Also out were solid New home sales data in the US which jumped 8.3%.
  • As a result the US dollar is stronger this morning (increased taper hopes) across the board but off its highs on the back of the data. EUR (1.3194) was the most resilient given the better data in the EZ but GBP (1.5307) was 0.4% lower, the Yen (100.27) lost 0.87%.
  • But it was the Aussie dollar weighted down by the accommodative CPI (0.4% qoq, 2.4% yoy) and the weak Chinese PMI which was hammered lower from a high of 0.9317 to a 0.9128 low and sits at 0.9156 this morning. We’ll discuss below.
  • The datafest hammered bonds in the US, the UK and Germany with 10 year Treasuries (+8 bps @2.59%), Gilts (+9 bps @2.40%) and Bunds (+10 bps @1.65%). Ouch that is a 3% loss in the US 10’s, 4% in the UK and a whopping 6.22% loss in Germany for bund investors.
  • Stocks were also under pressure from the better data (oxymoron alert) as bond yields rose but also as Caterpillar and AT&T disappointed. At the close the Dow (-0.17%) and S&P500 (-0.38%) were lower and the Nasdaq just dragged itself into positive territory (+0.02%) even though AAPL was 5% higher. In Europe the better data, which was unexpected pushed stocks higher across the board with FTSE (+0.34%), DAX (+0.78%) and CAC (1.02%) all higher. Worth noting, Facebook has destroyed estimates after the bell.
  • In Australia the ASX is signalling a small positive open this morning – hopes of rate cuts and resources likely to dominate again
  • On Commodity markets Gold has given back some of its gains (-$13 or 0.99% @1322 oz.) under the weight of better USD and Crude fell 1.79% ($105.31 Bbl) even though another almost 3 million barrels were drawn. Corn and Soybeans continued their selloff dropping 2.78% and 4.62% respectively.

Data today is vitally important for global and individual markets. In New Zealand we get the RBNZ rate decision before Japanese investment data, Italian consumer confidence, and crucial German IFO and UK GDP before almost as crucial US Durable Goods and Jobless Claims and the Kansas Fed index.

Another potentially big day so good luck and stick to your process

Greg

Aussie dollar loves Nicolas Darvas as CPI and China open door to a rate cut

I’ve talked about Nicolas Darvas before and I have been using his “Box” theory as part of my process for ages. His style of trading was about stocks and volume played a big part so it’s not exactly transferable to FX markets but what is transferrable is the notion that the Box concept implies which is that there are levels where buyers and sellers populate and rally their capital.

Yesterday I noted the Aussie was near the top of the Box and that ,

if the box top breaks then just like gold we’ll be look for a big move – 0.9600/50. But unless or until the box breaks the Aussie is in the sell zone with obvious stop levels to put in place.

So I was mega short up there at the top once we saw the China data and tweeted that if 0.9237 broke  the target was 0.9188 and 0.9155. Now the Aussie is mid range with no obvious trade however the hourly and 4 hour charts suggest some topside consolidation is likely but if last nights low of 0.9128 breaks then a retracement to 90 cents becomes possible.

China is slowing but is it enough to cause stimulus

Yesterday’s HSBC Manufacturing PMI was weaker than the market expected and as you can see in the chart from the Wall Street Journal as weak as it has been at any time in the last couple of years.

Of course it is natural for pundits to now suggest stimulus in a knee jerk reaction to self interest particularly if they are Australian pundits. But the big question, which goes to the heart of what the new leadership team in Beijing is trying to achieve, is whether this slowdown is being engineered or whether it is unexpected.

My view is that the answer is somewhere in between and that while the Premier wants a more equal growth profile over the next 7 years this acute weakness might comes as a bit of a shock. So I expect a bit more rhetoric like we have seen this week but with nothing concrete but the weakness was really in exports and there is little that Beijing can do on that front.

However for those of us who remember the Chinese New Year celebrations of 2009 when millions of Chinese workers went home and stayed there because their jobs were gone it is worth noting that the HSBC PMI Employment sub index is at its lowest level (47.3) since March 2009.

Now my view is that the whole point of the economic rebalancing being engineered is that the new leaders want a better and more even spread of growth across the Chinese economy so more Chinese can participate. Weak employment is not compatible with that so we might just see some new measures in the months ahead to address the employment situation if it deteriorates further.

Euro technicals look biased lower 

I like the Euro lower while below 1.3254 above which I would have my stop.

As you can see in the above Euro has broken its uptrend on the 4 hours and is rounding out.  A break of 1.3170 would confirm but I’m happy to have a small short with a stop above the overnight high.

Good Luck and have a great day

Greg

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