A big night and some very big moves in FX and commodity markets overnight with the Aussie falling more than 1 big figure, Gold slipping sharply down through $1600, Silver likewise fell sharply off almost 3% as was Nymex crude and Sterling is now only 75 points from the decisive 1.52 level which IF breached will open up a 10 big figure fall potential.
Looking at Sterling first it was the Minutes of the recent BoE meeting that have set the cat amongst the pigeons. Outgoing Governor Mervyn King led an attempt, along with David miles and Paul Fisher, to have the BoE increase the size of its bond buying program by £25 billion which was a surprise to the market. When taken in the context of the BoE recently increasing its inflation outlook the market is clearly fearful the risks are that the BoE throws caution to the wind in order to get the economy going which is putting further downside pressure on GBPUSD.
As you can see in the chart above GBPUSD has actually pierced the bottom of the support zone but not closed below it yet but it is very close and there is a lot of clear air between this level and 1.42.
The other important Minutes out overnight were the FOMC Minutes which came out at 1700 GMT or around 6am Sydney time and showed that the fed is starting to recognise that the flow of easy money can potentially, or is, lead to instability within markets particularly at the stage where they need to withdraw or reverse the stimulus. Interestingly rather than have a fixed end date at 6.5% unemployment which could cause huge ructions as all of us outside the Central Bank Conclave know the FOMC members seem to have had a light bulb moment with the Minutes saying,
A number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,
Sing Hallelujah! They get it finally but that doesn’t make it any easier to empty the bath without the baby going down the plug hole and the review that they have flagged of their asset buying program at the March meeting is now a critical point for stocks and other markets.
These minutes seem like they might have put a top in place for stocks.
Turning to gold the sell off continues which for us is not unexpected although the big fall through the bottom of the downtrend channel and the push well through the Bollinger bands is faster than we’d expected. But then again we have always thought that Heisenberg’s Uncertainty Principle had a role in markets in so far as we can’t know both the target and when it will get there it is one or the other so we focus on the target which remains $1525.
As you can see in the chart above Gold is pretty much on its lows for the day and well below the significant moving averages we watch. As we noted in previous notes our trend following systems are short but it seems the market is at risk of turning even more bearish if our calculation that the 50 day moving average at $1671 and the 200 day moving average at $1668 is correct. Should the 50 day moving average, the fast one but not our fast one, fall below the 200 day moving average, the slow on but again not our slow one, then we’d have a signal for many traders that the bear market has begun. So watch the moves in the next couple of days.
Silver also has decisively broken down with a huge fall overnight of 2.71% to $28.67 oz. The low for the evening was right on the last Fibonacci support of 23.6% of the move from the June to October 2012 rally. Personally we never use this support level but others clearly must.
In FX Land we have noted Sterling’s weak performance and the NZD was also smashed after the RBNZ’s hollow comments about intervention hit the market yesterday. If ever there was a case of a central bank outmatched by the market with a currency that is too big by trading and international standards then it is the RBNZ and the NZD – but hey a little bit of jawboning worked. Lets just hope they never have to actually do anything – that would be an ugly battle for the Central bankers.
The Aussie’s fall of 0.87% or more than 1 big figure from yesterday’s high almost pales in comparison with other moves in FX Land. Yesterday we noted the resistance at 1.0373/75 but thought the Aussie would break higher initially. This changed during the day and we actually went short with a stop at 1.0377 taking our profit far too early at 1.0316 with a take profit while we were asleep because we didn’t for a moment think it would fall out of bed as far as it has sitting at 1.0262 as we write. What a messy period of trading we have had recently.
Looking fundamentally for a moment German CPI data was bang on expectations but PPI was a bit higher in January up 1.7% against expectations of a rise of 1.5%. In France the Business Climate survey was a little higher than expected while CPI was lower. In Italy the industrial sales and orders data was weak while in Britain the claimant count and unemployment rate were around expectations. In the US the housing related data was mixed with Building Permits very strong but housing starts and mortgage applications a little on the weak side while PPI gave no surprises.
But stocks, which were already under pressure after a weaker night in Europe have really come under pressure from the FOMC minutes. With 45 minutes to go the Dow is down 0.67%, the Nasdaq has fallen 1.26% and the S&P is off 1.04% or 16 points at 1515. In Europe the FTSE managed to climb 0.25% no doubt excited by the prospect of more monetary easing while in Germany the DAX fell 0.3%, the CAC dropped 0.69% while Milan and Madrid were off 0.82% and 0.76% respectively.
On Commodity markets Crude was sharply lower dropping below $95 Bbl and our technical view is that Crude has some way further to fall.
RBA Foreign exchange transactions today in Australia and then it is Markit PMI time again with the release of dat for France, Germany, Eurozone, US and other jurisdictions. In the US jobless claims will be important as usual and crude stocks given the last days move could be crucial for Nymex prices.
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