Vantage FX | Aussie, Yen and Gold rally as US dollar pressured | 21 May 2013

May 21, 2013

Moodys threatened the US with a downgrade and the US dollar got hit and stocks dropped back a little in overnight trade.

This helped drive a very interesting 24 hours with Gold and Silver the big movers hit in early Asian trade and then rebounding as the US dollar came under pressure over the rest of the day. USDJPY reversed of the high of Friday after the Japanese economics minister said the Yen selloff was “largely complete” and even though stocks in the US were slightly weaker the FTSE eclipsed its 2007 high hitting the highest level since 2000 and within a small margin of the all time high from all the way back in 1999.

That buy and hold stuff really works doesn’t it? 14 years, gee whiz!

Anyway, enough of the rhetoric.

I didn’t get around to updating my CFTC data and charts till later in the day yesterday but when I did said,

New highs in USDJPY still didn’t manage to get the net short position back to the highs of the last 6 and 12 months – which might imply a lack of follow through and a very tired rally in USDJPY or tired Yen sell off.

That makes sense given all of the overhead resistance in this 102.70/1.0350 region we have targeted and been warning about for so long. It is a stretch given the re-emergence of USD strength to say the Yen is going to rally but the positioning remains a warning.

Not long after I decided to go short USDJPY with a bit of leverage on this basis and on the techincal outlook. It helped that  the comments from Economic Minister Amari were resonating around the market as well and as dangerous as being short USDJPY is in this long and very strong trend I have a clear stop in place so if I get stopped out it was just a trade that didn’t work out.

Clearly this is a long and persistent trend, clearly anyone trying to sell US dollars during this trend has been hit hard if they weren’t nimble. The key to a deeper sell off, and also support, looks to be the 101.60/70 initially and then if this gives way 100.75/85 with very big support at 99.93.

Dollar Yen has been higher for 8 months in a row and has rallied from around 79.50 when it started to a high on Friday night above 103. That is a very big and strong trend and we think Amari is right for now. Equally with the Japanese Government upgrading its economic outlook which is being mirrored in improving economic data relative to expectations and with all the overhead resistance perhaps it is time for USD to consolidate for a while – either in time or price.

On other FX markets the US dollar reversal yesterday helped lift the Aussie back up and above 0.98 hitting a high or 0.9827 before pulling back to 0.9804 at the moment. After falling for 9 out of 10 days in a row some sort of consolidation is expected and is not inconsistent with an overall downtrend. Indeed using my usual systemised but discretionary approach it is not beyond the realms of reason that AUDUSD heads all the way back to the 0.9970/90 zone which is where our daily fast moving average sits.

Clearly the Aussie has room for a rally as much because the punditry is now all universally out and about declaring it dead and on the way to 0.90 as you can see in this article in the FInancial Times. I guess as one of the first to both call and explain the change in Aussie sentiment and prospects and can be cycnical about the new found love for hating the Aussie being evidenced all over the place but the key is any rallies are counter trend and opportunistic within an overall move to test support at 0.9400 sometime.

Euro and GBP also rallied as did the CAD so we know that last nights move was a US dollar move – even gold and particularly silver managed to rally after early weakness. So the question is whether or not this is an early weak lack of data one day wonder or something more durable. We’d argue there is room for a reversal in many markets within an overall trend toward a stronger US dollar in time.

Turning back to stocks the Dow fell 0.13%, the Nasdaq dropped 0.08% (sounds hyperbolic when you write it like that) and the S&P fell 0.09%. In Europe as noted the FTSE rose 0.49% to 6,756, the DAX was 0.69% higher and the CAC was 0.54% higher. In Milan and Madrid stocks were under pressure falling 0.55% and 0.79% respectively.

On commodity markets as noted the weaker US dollar drove markets with Silver reversing off the acute early Asian sell off yesterday to close something like 10% off its low at $22.67. Gold also reversed off its weaker early morning to close up $19 at $1386. The volatility in the precious markets and the price action on Friday and then yesterday morning certainly suggest that the Barrons conspiracy theory we talked about yesterday has some legs.

Elsewhere Nymex crude was 0.65% higher, copper rose 1.08%, Soybeans rose 1.04%, Wheat up 0.99% and Corn fell 0.57%.

DATA

RBA Minutes are out today along with the Australian leading indicator of Economic growth. PPI in Germany tonight and a raft of inflation data in the UK. Redbook is out in the US tonight.

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