Vantage FX | Icarus beware the Yen, Euro under pressure, Aussie finding support?| 11th February 2013

February 11, 2013

Have we seen an end to the recent trends in last week’s trade? It certainly looks like the chances are high when you look at the charts. The Dow managed to post its first weekly loss for 2013. The Euro reversed savagely from the previous Friday’s high atop 1.37 and even the Yen’s run toward the sun looks a little Icarun after comments from Finance Minister Aso that then Yen had moved a bit quicker than expected. Even the Aussie dollar managed to reverse its recent weakness although what a day!

Oh and then of course Venezuela devalued the Bolivar by around a third as the currency wars heated up another notch.

Here is a look at the 10 best and worst performing markets of the 90 odd we watch here at Global FX and from our new weekly look back report we put out each weekend. You can find the inaugural one here.

Anyway looking back to Friday the big news was the resurgence in Chinese imports and exports which was then supported by the pick up in US exports. In China Exports were up 25% much more than the 17.5% expected while Imports rose 28.8% versus expectations of a 23.5%.  This is important for what it suggests about the strength of the global economy which represents China’s customer base. In the US the trade deficit was much lower than expected on the fall in energy imports which is going to be a massive flow change in global capital markets with repercussions for currencies and US dollar assets in the years ahead. The balance of trade came in at -38.5 billion from -48.61 billion last.

In contrast however, and a little unexpectedly really German trade data was weaker than expected with exports coming in up just 0.3% from +1.3% expected and imports contracted 1.3% against the increase of 1.4% that the market expected.

The interplay of this trade data then filtered through to Global FX markets with the Euro remaining under acute pressure into the week’s end and it sits in early Asian trade this morning at 1.3361 just above Friday nights low of 1.3352. The intervention in the currency markets of Mario Draghi last week even though it was only verbal has had a big impact on a market that was pulling back already and a Euro that was under pressure.

Looking at the chart above based on our usual trading system our target is the convergence of the of the bottom of the start of the recent abortive rally and the support of the trendline which comes in around the 1.3240/50 region. We’ll see how Euro looks there and without JimmyR having turned negative yet this is a corrective pullback – for the moment at least.

The better data in the US also had its impact on the Canadian dollar which we don’t follow here that often given that in the Asian time zone it is the least liquid of the major currencies and therefore only good for longer term trading but the acute weakness in the job market that showed up in data Friday night saw it lose significant ground against the US dollar. Jobs fell 21,900 in January against the punditry’s expectation of a gain of 5,000. This only marginally pushed the unemployment rate higher from 7.0 to 7.1% but combined with the unexpected increase in the Canadian trade deficit saw the Loonie under pressure. As noted recently the 1.0060/80 region is the key long term level with a weekly close above here required to kick it higher.

In Japan the comments mentioned above by Finance Minister Aso certainly didn’t miss a USDJPY market that has been overcooked for a long while and the Yen strengthened from above 94 in the later part of the week to sit at 92.77 this morning. As you can see in the chart below if USDJPY decides that it is time for a pullback then it could be a very large one but for the moment and in the short term a break of 92.17 is needed to kick the Yen higher once again. But support in the 91.50/80 zone is likely to be strong.

For the Aussie it was tumble dryer day – a lower low than the previous day, a higher high than the previous day and a close inside the range of the previous day. What fun for traders but this messy price action may be telling us that the Aussie is trying to base. For mine when you get a break lower and an aggressive expansion of the Bollinger bands in a market as occurred in the Aussie last week there is always a period of consolidation of the overcooked (up or down) levels. The 200 day moving average above is key resistance and the Aussie would need to regain it to show some life in the old legs again soon.

Turning to stock markets the Dow underperformed the S&P and Nasdaq both of which finished near the highs of the day to post a rise of 0.35% but still posting a small loss for the week, its first in 2013. The S&P was up 0.57% to 1518 after hitting another new multi year high and the Nasdaq rose 0.91%.

Europe was in a more ebullient mood buoyed by the Chinese and US data we discussed above with the peripheral markets rallying strongly. The Madrid market was up 2%, Milan rose 1.41%, Paris 1.36%, Frankfurt 0.81% and the FTSE was 0.57% higher.

In Asia the Nikkei was hit with the yen and that will be the shape of things to come as that correlation remains robust as you can see in the chart below so this will once again be a key driver. It is Japanese Foundation day today and Chinese New Year across a large part of the rest of Asia so expect that to impact trade this week.

On commodity markets oil seems to have a top for the moment as its gradual move lower continued on Friday. Nothing huge by any stretch of the imagination but certainly a slide worth watching for traders. Gold continues to mark time in the $1660-$1680 region it has been trapped for a while and Silver continues to be the high beta precious metal. Coffee managed to rise a little over 1% Friday but still remains under pressure a little as were Soybeans which were more than 2% lower

Data

Chinese New Year holiday’s and Japan National Foundation day today so keep that in mind.

Elsewhere Home Loan data in Australia is out and it will be interesting to see if there is a resurgence in borrowing to support the uptick in prices. Otherwise fairly quiet day.

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