Politicians in Cyprus voted down the package to bail in depositors and bail out Banksters and bond holders which is the entirely appropriate thing for them to do given the undemocratic nature of this “rescue” package foisted on the tiny Mediterranean nation. We’ll not get too rhetorical on this again as we have said our piece in the past day but this increase in tension is important in a trading sense because it is reinforcing some of the trades we have been highlighting over the past couple of days and it it seriously driving our Euro and Gold views.
But before we get to those lets have a look around the grounds.
Stocks were lower which is a bad sign for the Australian market which broke an important trend support on the close below 5000 yesterday. It looks weak and has a substantial pullback coming particulalry because broker down grades hit BHP in overnight trade offshore. In Europe the ZEW business survey in Germany was stronger than the punditry expected but with Cyprus dominating no one cared. Spain was hammered 2.20% lower, Italian stocks dropped 1.59% and in France where the Finance Minister has some issues to deal with stocks dropped 1.29%. The DAX was more subdued falling 0.78% and the FTSE was positively positive compared to the rest of Europe falling only 0.26%.
In the US the data was pretty good with Housing starts and Building Permits both stronger than expected but Cyprus weighed on sentiment and even though the S&P is only down 3 points just near the close for a lose of 0.2% it was off as much as 13 or 14 points earlier. The ECB announcement that it would provide liquidity to Cyprus buoyed things a little and has actually managed to push the Dow just into the black and it is up 6 points or 0.03% just near the close. The Nasdaq is down 0.27%.
On FX markets the Euro is under pressure again against the USD making a low overnight of 1.2843. It just held trendline support against the GBP and EURGBP looks to us like it is headed substantially lower if 85.15 gives way. USDJPY had a down day but is still holding the uptrend – the big level to watch remains the trendline which comes in at 93.36 today. The Australian dollar was weaker and is 0.39% down on the day at 1.0361 after making a high at 1.0405 yesterday around the time the RBA minutes were released.
On Commodity markets Nymex crude fell 1.65% back to $92.19 Bbl. Corn and Wheat rose more than 1% but soybeans were 0.3% lower. Silver was down 0.11% to $28.91 oz while gold rose to $1615 at one stage.
Looking more closely at Gold we turned bullish a week or so ago and noted Monday that we thought it should get to $1619 at a minimum but the set up on our charts suggest that is has more in it then just that with the high overnight of around $1615 almost but not quite there. Adding to the bullishness is a report on the seasonality of Gold that we picked up from the gurus at The Stock Traders Almanac – they said,
gold has enjoyed a period of seasonal strength since 2001 that begins toward the end of March and lasts until late May (yellow shaded box). Last year this trade did not work. However, it has worked in nine of the last twelve for a theoretical cumulative single contract gain of $43,630
That is some one contract return and while seasonal patterns aren’t guaranteed it is worth keeping in mind. Also worth keeping in mind is the set up of the Gold Chart.
Below is our VantageFX chart and you can see that gold has taken out our fast and slow moving averages and is now back in the middle of the down trend. If the $1619/22 region can be breached then Gold is headed toward Fibo resistance at $1639 and if that gives way $1661.
Turning to the Euro we have had a target around 1.2650 for some time now but as we noted yesterday morning while it is above the 200 day moving average then the outlook is not dire. Last night saw the Euro test but it is closing above the 200 day moving average. But the downtrend remains firmly entrenched as you can see in the chart below.
The way we look at charts and the system we use subjectively says that there is a very high probability that Euro will trade down to the 1.382 Fibo extension of the recent move before the multi day consolidation.
The Aussie chart is interesting as well given that it had a down day but has managed to hold above the old trend line support with last nights low. It has been a very messy time for the Aussie lately and we thought it was set up for a run toward 1.05. What the price action seems to suggest for the moment is that Aussie is in aband where buyers and sellers are happy. Sure it might be 2-4 cents wide but Aussie remains very stable which means we are trading smaller positions and shorter time frames as opposed to the bigger picture stuff for some of the other markets. Same system, just different time frame.
Kiwi current account and then the Westpac Leading Index in Australia. Eurozone Current Account tonight might be interesting and the German 10 year bond auction is bound to get plenty of bids and then the Fed decision is out tomorrow morning.