Vantage FX | Euro high in, what about the Aussie? | 12 August 2013

August 12, 2013

Recap

  • Stocks were under pressure into week’s end with more Taper Talk  the Dow (-72, 0.47% @15,426) was down as much as 152 points at one stage before recovering a little with a similar pattern of trade for the Nasdaq (-0.25% @ 3,660) and the S&P 500 (-6, 0.38% @ 1,691). This marked the end to the six week rally with a lower close on the week.
  • Europe wasn’t swayed by the weak US performance though with rises on all major markets. The FTSE closed up 0.82%, DAX 0.24%, CAC 0.31%, FTSEMIB 0.24% and IBEX35 was 0.74% higher.
  • A bit of reality came back into Global FX markets on Friday, or at least it felt like it to me after a weird week, with the US dollar getting its Mojo back unwinding some of the baffling strength in Euro ( 1.3337) and Sterling (1.5502) early in the week. The Aussie kept keeping on making a high around 0.9213 but it is off a little this morning. USDJPY continues to have a downside bias and closed the week around 96.21.
  • On rates markets there was a bit of a  rally in US 10’s which closed at 2.58%, while Bunds closed at 1.69% and Gilts at 2.46%.
  • It is also worth noting the moves in the Citibank Eco surprise index last week for G10, US, Eurozone and China all of which improved materially (data better than expectations) while in Australia the data was weaker than expected knocking the surprise index into negative territory for the first time since March.
  • On Commodity markets Copper was on a tear into week’s end closing at $3.31 lb up 1.16% and more than 8% better than the lows a month or two back. Crude was up a stunning 2.49% to $106.03. Silver was up 3.52% but gold was fairly flat at $1314 oz. And of course of friends the Ags had another day of decent moves with corn, wheat and soybeans all down more than 1%.
  • Oh and of course in Australia we had a leaders debate in the run up to the election which seems to have put the idea that the Labour Government has a real chance of victory back in its rightful low probability place. PM Rudd was nowhere near as strong as expected and Opposition leader Abbot was nowhere near as poor as many hoped. The honeymoon seems to already be over for PM Rudd as his back to the future Peter Beattie move last week had already suggested. Will markets care? Nope! But small business might be happier about a clearer picture of who might be the victor.

On the data front Korean Export and Import price growth is out along with Kiwi food prices before huge data from Japan in the form of GDP which is expected to moderate from the 4.1% annualised rate last quarter but print a still healthy 3.6% rate. We also have Singapore’s GDP out which will be an interesting lead on what is going on in the region before we head to Europe and the US for some minor releases such as French current account, P0rtuguese CPI and the monthly budget in the US.

The Fed, US data and the Euro

Last week we heard from both Sandra Pianalto and Richard Fisher on the Taper and both seemed to paint a picture of an economy that while not in the pink of health is at least recovering to the extent that it remains prudent to take some of the bond buying and cash injection off the table.

On CNBC Fisher said,

Personally, I think it is timely, assuming the data keeps moving in the direction it’s been going, for us to begin to dial back the monetary accommodation we’ve been providing for the system

And guess what – the data is heading in the right direction still as we saw with a post GFC low for the 4 week moving average of jobless claims last week and as we can see in the Citbank economic surprise index chart of the US below.

That is a very solid recovery as you can see recently and means that the US data has been solidly outpointing expectations. It has also been outpointing Europe even though Europe has been doing better than expected also. Which is why I was surprised that the Euro actually rallied last week – but then again last week was about hunting USD longs as I noted in my weekly newsletter on Saturday.

But there is a reasonable argument now that the Euro has hit a level at the top of its wide trading box and should reverse a little lower this week – or break through. Either way there is a trade here and I might sell some for my A account on FX copy this week.

I reckon while below 1.34 Euro is a solid sell.

Aussie short covering – how far can it go.

know early last week the AUDUSD fell to an 88.46 cents low but I didn’t actually think  the market would be getting shorter at these levels. Actually even though I am a buy high and sell low type of trader (trends) I am surprised that the move early last week saw a new all time high in Aussie dollar shorts in the CFTC report Saturday morning as you can see a little later in the CFTC report I’ll publish.

So it is no surprise that the buying was with such gusto as the Aussie broke back into the 90-93.50 box it had been in previously. Indeed we saw the Aussie rally for 5 days straight in a run not seen since last December.

You can see how decisive the mid 93 cent region is for the Aussie if for some reason or somehow the Aussie gets up and through this level there is a high probability of a much bigger run higher. The market is still short in the speculative time frame but the long term holders are still long so we might be in a bit of a vacuum here where short term will dominate.

Have a great day and good hunting

Greg

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