Vantage FX | Fiscal High, Stocks rally, Aussie lags, Yen breaks trend| 2nd January 2012

January 2, 2013

It has been all about the fiscal cliff for a few weeks now so with a deal close to being done the end of year trade earlier this week was very positive as the Dow and S&P reversed last weeks weak close. This also helped the Aussie dollar push up to 1.04 and USD/JPY decisively pushed higher again.

So the news that the Senate passed a deal on the US Fiscal Cliff early on January 1st is likely to further buoy markets in Asia today. We have avoided thee worst of all possible outcomes but as happy as markets obviously are over the prospect of a deal and will be over the Senate vote it is worth noting that there is still a chance for a hiccup in the House vote – a not insignificant probability now that it gets rejected. Just something to keep us all focused on regardless.

Another area of focus over the past 6 months has been the transition of power in China and the increasing prospects that the glide path for the Chinese economy was for a soft landing. Further data over the past few days has confirmed that it does appear that China is recovering with Reuters reporting that,

The final reading for the HSBC Purchasing Managers’ Index rose to 51.5 in December, well above the preliminary reading of 50.9 published in the middle of the month and November’s final reading of 50.5

This is the best outcome since May 2011 and the new orders component rose to 52.9 which is the best result since January 2011. The implications of this are clearly very positive for the global economy generally and are specifically very positive for the German economy, particularly exports, and the Australian economy and perceptions about the Australian economy and Australian dollar.

Stocks

So at the close the S&P 500 was up 1.69% or 23.76 points to 1426.19 on a physical basis.  This was the high of the day and on a futures basis  we  avoided a stop on my trend following systems short but as we mentioned on Monday we have to take our signals so with this small position we’ll see.

The Dow rose 166 points or 1.28% to 13104 while the Nasdaq rose 2% to 3019.5.

In Europe it was half day trade in London and Paris with Frankfurt closed – the FTSE was 0.49% higher and the CAC rose 1.48%.

In Asia today its pretty much just Australia with many markets closed but the focus will be on whether or not the US House of Representatives can get a deal done in our time zone before markets open in Europe and the US but a generally more positive tone is expected. The ASX seems to be lagging a little however so we are keeping an eye on that for although the uptrend is still intact if the SPI were to fall below 4590 a deeper retracement may be in the offing.

Global FX

We’ve been spending a bit of time on the relationship between the Aussie Dollar and the S&P 500 lately so it is worth noting that the AUDUSD has under-performed the equity market bounce as you can see below.

Correlations are not static and even in this 4 hour chart you can see the ebb and flow of the movements. On the daily charts the divergence is even more stark at times over the past year – perhaps the FX markets are simply telling us that they are not convinced and are looking for a House vote of yes.

Elsewhere the EUR is trading a fairly quiet range and as I noted Monday “The Euro is still dancing on the spot and only a break of 1.3150 would open the way lower or a push up and through 1.3315 giving more topside momentum. This range is defined in the turquoise box on the chart” below.

Dollar Yen is far more interesting however given it has now closed above the downtrend line at 86.51 we have been focused on for a while now. Looking at the daily charts USDJPY looks extremely overcooked and so we are expecting some sort of pullback within the overall multi-quarter uptrend that we believe is in train – but our trend following systems are still long.

Commodities

The move in Nymex crude of 1.12% to $91.79 Bbl has taken the price up through the 200 day moving average on a close basis for the first time since the 17th of September 2012. It is only just above so we’ll see if Crude can hold this level and it has uptrend support at $89.46 Bbl.

Gold was also up more than one percent with a jump of 1.2% to $1677 and Silver is up 0.85% to $30.37 oz. Gold’s move is important as in December it broke the mulit year uptrend but was able to recover and push away from that level for months end. Gold has been higher each year for a decade now so the trend remains intact – for now.

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