Vantage FX | China data drives Aussie Dollar higher | 9 August 2013

August 9, 2013

Recap

  • The Chinese data was the highlight yesterday for markets with exports up 5.1% and imports up 10.9%. This ignited a rally in the Australian dollar (0.9102, +1.16%) and set a tone in Global FX Markets of US dollar selling. So this morning the Euro (1.3386, +0.37%), Sterling (1.5541, +0.35%) and Canadian dollar (1.0321, +0.97%) were all higher. The yen strengthen to push USDJPY down to a low of 95.79 before rallying back to 96.63 this morning for a US gain of 0.33%.
  • Data in Germany was pretty poor, though FX markets didn’t care, with Exports rising only 0.6% (1% expected) and Imports falling 0.8% (+0.5% expected). Indeed stocks didn’t care either as it was all about China and the DAX (+0.7%), CAC (+0.63%), Milan (+1.83%), Madrid (+1.14%) and the FTSE (+0.29%) all higher.
  • In the US stocks were a little less ebullient although the 3 major indices were all higher with the Dow (+0.18% @15,498), Nasdaq (+0.41%) and the S&P 500 (+6 pts, 0.36% @1,697) breaking the 3 day losing streak.
  • Rates saw US 10’s close at 2.59%, Bunds at 1.69% and Gilts at 2.49%.
  • On Commodity markets Dr Copper was bid before the Chinese data yesterday (more conspiracy – but smoke and fire)  and it ended trade at $3.26 lb (+2.66%), Gold rose 1.91% ($1312.80 oz) while corn was 1% higher, soybeans 2.11% but wheat fell 0.39%.

ON the data front today is huge with a raft of Chinese data including CPI, PPI, retail sales, trade balance, industrial production and urban investment before we head to Europe for French IP, Italian and UK trade data and Italian CPI before rounding out the week with Canadian employment data and US wholesale inventories.

My guess is the market will be looking for any reinforcement of the apparent strength seen in yesterday’s Chinese data to push trade into the end of the week. It could be another interesting day.

I had a shocker yesterday as the USD fell out of bed 

I’m trading in FXCopy now days so anyone and everyone can see my trades and if you have a Vantage FX account you can copy my trades. But yesterday was one of those days when my setups for the trades just didn’t work. It happens so I’m not curling up in a ball and indeed I have instituted some new positions this morning but it was interesting to watch the price action yesterday around the Australian employment numbers and then Chinese data.

First thing to note is that the Chinese data clearly appeared to be leaked or was known in some circles if the Aussie dollar’s price action both before the employment data was released and then after as it sold off in response to the unexpected (by the punditry) fall in employment. The Aussie remained well bid and was chased all the way back to the then highs of the day after release of the data and in the run up to the Chinese data.

The reason I raise this is because I trade FX markets mostly because they aren’t subject to the vicissitudes that we see in the stock market around company announcements and earnings beats and misses. So this is just a message to be wary of price action around Chinese data of which there is plenty today.

Anyway back to the trades – my setup was for selling in Aussie, GBP and Euro and I took the signals.

Trades don’t always work, that’s the nature of the business. Would I have done anything different? I guess with hindsight I should have allowed my subjective overlay to cut me out before my stops once the Chinese data hit the market. I would have saved quite a bit of money and percent but I would have had to break my process.

So in the end every single trade lost money and indeed was stopped out which is so unusual its not funny I lost some decent amounts – but it is what it is and I move on.

Where to for the Aussie now

The Chinese data buoyed the Aussie dollar and the commodity bloc and copper yesterday as noted above there is some hope that the Chinese slowdown is abating. This took the Aussie up and back into the 90-93.50 box it was in before the recent break lower as you can see in the chart below.

There is now clear support in the 0.9000/30 region which was the bottom of the old box. Short term resistance is around the 0.9140/50 region which is where I have the stop for my short instituted this morning. 0.9092 is very short term support and a break of this would be a signal that we are in for the pullback that my set-up suggests.

Euro might have found a short term top as well

As you can see in the chart below the Euro has a nice little short term channel it is in and when I look at USDJPY’s recovery overnight and I add a bit of rhetoric around Greek unemployment and the weaker than expected German data last night I reckon a reversal is in the offing back toward 1.3355 and we’ll see how support looks there.

Good Hunting and watch that Chinese data today.

Greg

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