Gold is the big story over the weekend as it absolutely tanked falling to close at $1482 oz down more than 4% or $63. We have been bearish the yellow metal for some time and the failure to hit let alone break through the $1619 when the Cyprus mess was in the headlines spoke to us, as we wrote at the time, of underlying weakness in Gold. Our view since late last year was always a technical one and we have no fundamental idea why Gold was selling so heavily on Friday night and the interesting thing about most of the commentary we have read is it is about the drop not the cause of the drop. Which is instructive in itself – we will share our views on gold a little later this morning but for the moment it remains under pressure.
More interesting than gold however was the move in USDJPY which was looking very wobbly Friday. I had a discussion with a mate of mine on Twitter about USDJPY and noted that all the crosses looked a little dodgy Friday morning as you can see in the tweet from the afternoon. I got short USDJPY on Friday on this basis and it closed the week at 98.34 down about 150 points from the high in the morning.
What we saw in USDJPY was that we had a convergence of a market which is still very short as we point out in the return of our CoT positioning report and news that the US Treasury has told the Japanese that they have their eye on them and their policy with regards the Yen. We are paraphrasing here but the treasury reiterated that the Japanese had signed off on the last G& communique, where you will remember that they all agreed as long as [policy was aimed domestically the external and currency impact was simply what it was, and reminded the Japanese that their monetary policy must be aimed at getting the Japanese economy going not just at weakening the Yen.
So the Japanese card has been marked and 100 is now a huge level – we have probably seen an interim top for now.
When we look at our technicals we have to say USDJPY looks like it is going to head back to test the top of the box it broke out of which roughly also corresponds with the 38.2% retracement level of the move from the bottom of the box to the recent high. Thus our target is 96.30/65 when we will get a better view of where USDJPY is going.
Now remember that this is a simply ordinary run of the mill retracement which we see in markets over and over again and the pullback in Yen crosses is likely to be replicated across the board.
Elsewhere on Friday night the weaker than expected retail sales in the US, which fell 0.4% raw and -0.1% ex autos and gas, hurt economic sentiment in the US and was aided in undermining perceptions about the recovery by the sharp and unexpected fall in the Michigan Consumer sentiment number which printed 72.3 against 78.5 expected and 78.6 last. The US recovery was never going to be linear but this recent run of data has been a bit weaker than many expected and the downside surprises has helped the Yen and even buoyed the Euro and the GBP.
Speaking of the Euro it continues to try to climb off the mat and had a marginally positive day after a bit of a wild ride. No doubt the EURJPY flows will be mucking around with EURUSD moves at present and the EURJPY selling might put a dampener on any EURUSD rally for the moment. Euro needs to break up and through last weeks highs at 1.3135/40 if it is to kick on – if it can’t it can’t. GBP is an interesting one as it has been climbing off the floor since March but spec positions are at a 6 month high in terms of bets against the pound – this is most curious and speaks of underlying distrust in a fundamental sense for the GBP rally. From our point of view GBPUSD should and will eventually trade down to the 1.42ish level but for now the short term risks might be skewed the other way.
The Aussie traded underneath 1.05 as we thought it might on Friday. We squared our long from earlier in the week and went short AUDUSD in the 40’s taking profit at 94 on Friday night. Aussie has held up well but it does look like lower levels might be beckoning. Watch the 1.0480/85 region from where it bounced last week as a key indicator of direction.
The 4 hour charts suggest a move back into the 1.0450/60 region with 66 the 50% fibo of the bounce from 1.0343 in early April – below that it is 1.0436.
On commodity markets as discussed Gold fell heavily but Silver also tanked pushing below the low from May last year and opening a potential move to $22.47 oz. Crude tanked as well dropping 2.37% to $90.66 Bbl and Dr copper also fell more than 2%. You might characterise it as a USD move but the Euro persistence and Yen strength suggest this is a view on global growth.
But nothing seems to worry the stock markets which continue to be goosed higher by Central Bank liquidity with the Dow ending flat, the Nasdaq finishing down 0.16% and the S&P 500 falling 0.27% to 1589. It did manage to hold above the uptrend line however into week’s end. Europe was a slightly different story however with the FTSE down 0.5%, the DAX falling 1.61%, the CAC 1.24% and Milan and Madrid down 1.50% and 1.46% respectively.
Earnings season continues so this will be important and I note I read an article on Market Watch which said the analysts have been more bullish than the strategists during this market run and thus more successful. It seems the ground up rather than top down stuff is working a little better at the moment so earnings may continue to be okay and support the market’s levitation.
Kuroda is talking again today and then we have Home Sales in Australia before Chinese GDP data – this is a huge number and almost important as non-farm payrolls. The market is looking for 8% YoY and 1.9% QoQ but we are guesstimating on stronger numbers even with the net export number last week.
Tonight is quiet in Europe and then in the US the highlights are TIC flows, NAHB index and Empire State Manufacturing