Vantage FX | Aussie near top of its box as Taper Talk hits stocks | 7 August 2013

August 7, 2013

Recap

  • My Goodness, Septaper and certainly Dectaper is back on the table now after Charles Evans, President of the Chicago Fed, said the Taper was “quite likely” to happen this year but added the usual caveat about the materialisation of the growth outlook but added “I couldn’t tell you exactly which month that will be,” but also said that “We need stronger evidence of accelerating growth, a little more momentum…We’re not far from that.”
  • Adding to the Taper talk and the weight on stocks was some pretty good data in the big economies with UK Industrial Production (+1.1% mom v 0.7% expected), Italian GDP (-0.2% v -0.4% expected), German Factory orders (+3.8% v 1% expected) and the Redbook index in the US (+1%) all performing much better than expected
  • The result was that stocks pretty much everywhere came under selling pressure overnight with the Dow (-93 pts, -0.6% @15,519) Nasdaq (-27 pts, -0.73% @3,666) and S&P 500 (-10 pts, 0.59% @1,697) all lower. In Europe it was also a sea of red with the FTSE (-0.24%), DAX (-1.17%), CAC (0.42%), FTSEMIB (-0.44%) and the IBEX35 (-0.36%) all lower.
  • On rates markets you might think that Taper talk might spook traders a little but US 10’s were up just 1 bps to 2.65%, Bunds were down a couple to 1.71% and in the UK 10 year Gilts were unchanged at  2.48%.
  • Like stocks Global FX Markets had some decent moves in the past 24 hours. The Aussie (+0.65% at 0.8987) was higher as expected on the back of the RBA move which is really just about positioning. The Euro has taken the 1.33 level and sits at 1.3307 (+0.38%), Sterling (1.5350, -0.05%) is down a smidge while the Yen inextricably when you think about Taper talk has risen with USDJPY (97.71, -0.57%) is under pressure toward the bottom of its range.
  • On Commodity markets Gold was pollaxed falling almost $20 oz to $1,282, Crude fell 0.87% to $105.63 Bbl but Dr Copper rose a penny to $3.18 lb. The Ags had a quite night for them given recently volatility with moves 0.5% either side of square.

On the data front Kiwi labour and unemployment data, AiG performance of construction and lending data in Australia as well as a speech by RBA Assistant Governor Guy Debelle. French trade data, BoE quarterly inflation report, a speech to Parliament by BoE Governor carney and IP in Germany are all out as well. In Canada its the Ivey PMI and building permits while in the US its mortgage aps and consumer credit (debt).

RBA Cuts, Aussie Rallies, we miss our trades and the market misreads the message

Rightyo, so we got the call right yesterday that the RBA would cut rates and the Aussie dollar would rally. We waited till after the data and the move and bounce off the low 89 region to set our long running into the RBA announcement. It was around 1pm just before a lunch appointment and my laptop blew up right as I was trying to get on. So I missed the trade which was disappointing but what was really disappointing was that my Business Continuity Planning (BCP) failed me – Vantage FX has a redundancy for this very situation because while my trading laptop blew up I still had access to a computer and the internet. So I could have signed onto Webtrader and placed my orders.

I’ll write a piece about BCP in the next few days and the importance of it because in my other guise as a bank director and consultant it is one of the key themes I focus on. Anyway I have a new Laptop today and my Toshiba will be going in for a warranty fix – lesson learnt and Webtrader will never be far away in the future.

Anyway back to the RBA and the market seems to have focused on a lack of easing bias which I don’t necessarily agree with given as I noted yesterday they needed to tread a fine line during the election campaign but they did do what I thought they would with that quote from last month about the traction of all the easings they have done till now keeping the exact wording that,

The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time.

So they clearly still believe that rates work but I fail to see that they have lost their easing bias. Readers know that I think highly of the RBA and central bankers generally. I strongly believe they try their best to do what is right but given the fractious political environment in Australia at the moment they needed to tread a fine line. So in their closing sentence they said,

 The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.

That just means that if they think they need to ease again they will and if they don’t they won’t. The NAB, with the benefit of their brilliant NAB Business Survey, still thinks another cut is in the offing and I have to say I am with them.

Looking at the Aussie I’ve put a rough version of the box we broke down out of last week on the chart above and I wrote earlier this week or late last week that I reckon AUDUSD has to trade 0.9035 to confirm a break back inside the box. You can see here that I am short this morning for both my A and B accounts at FXCopy so we’ll see how that goes on the day. Overall however I think we now have a strong case that the low the other day of 0.8846 and the trend line I put on the Chart back on Saturday in my Weekly is the line of downside support and it is solid.

Have a great day

Greg

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