Just before I kick off with the overnight report can on behalf of Vantage FX can I wish our readers and their families all the best for Christmas – it is a wonderful time of year for family and friends to get together and reconnect. The job of course will be to keep those connections strong all through the next year. If possible we would wish this and good health as our Christmas gift to you.
Now to the report
The week ended poorly for stocks and the Aussie Dollar as the lack of a deal on the Fiscal Cliff and John Boehner’s self inflicted obvious defeat appeared to leave the negotiations no closer than they had been at any stage since they began. The push for the Republican vote and then the reality that Boehner can’t even carry his own caucus hit markets on Friday with US markets off something in the order of 1% and the US dollar and the Japanese yen gaining.
Over the weekend Boehner said there is still a chance of a deal but now that we know he has between 40 and 50 members he can’t carry then we retain hope of a deal but it looks like it will fracture his party and or his leadership and we wonder is he prepared to go that far – does he have that vision. We hope so.
Before we move to the close of the markets a couple of things worth noting in the data Friday night was the strength of Durable goods in the US which rose 0.7% in November which was much stronger than the 0.2% expected and the non-transportation component was up 1.6% against expectations of -0.2%. There was also good news on the personal income front which rose 0.6% in November. Elsewhere the UK’s Q3 GDP data came in around expectation at 0.9% but as the budget deficit worsens so too then is the Triple A rating at risk.
Stocks in Europe were all lower with the FTSE down 0.31%, the DAX off 0.47% and the CAC off 0.40%. Spanish and Italian stock markets went in different directions with Milan off 0.40% and Madrid up 0.35%
At the close the S&P 500 was off 13.54 of 0.94% to 1430 which is a big down move but the recovery from the low around 1423 still leaves the market up on the week so its a relative sell off over the cliff and suggests that on balance the market still thinks that a resolution will be achieved. The Dow fell 0.91% and the Nasdaq was off 0.96%.
In Asia on Friday it was Fiscal cliff fear and disappointment about the BoJ that hit stocks with the Nikkei off 0.99%, the Hang Seng down 0.68%, the Kospi down 0.95% and Shanghai off 0.69%. The All Ords was down 0.25% but the SPI200 futures have recovered from the lows so like the US markets a weaker end to what was still a pretty positive week.
The Australian dollar, suffering under the weight of a very long speculative community, cracked also and went down and to the key 1.0380/1.04 region we identified on Friday morning and it closed the week below the uptrend line from the October low of 1.0150.
On the 4 hour chart the Aussies slide is looking a little over cooked and it may find some support in the 1.0380 region we had identified as our target. Equally suggestive of some AUD recovery is the fact that the AUD is oversold relative to the move (and recovery from the lows) of the S&P 500. The target for a bounce might be 1.0447 which is the 200 period moving average of the 4 hour chart. The previous uptrend comes in at 1.0348 today so if the Aussie slips further this would be first support.
We are not going to fight this emerging sell off because we know that the large levered community is or has been very long Aussie Dollars on the IMM and so there is plenty of selling pressure from this quarter and associated accounts if this fiscal cliff mess drags on and if the US dollar retains a bid tone.
Elsewhere in Global FX land the weakness in stocks saw USDJPY under pressure but as stocks came back so too did dollar yen. It is pretty clear that 83.77/81 is the support zone for USDJPY and a break is needed to open the way lower.
Euro was also off its highs and it too seems to have a fairly obvious support zone that would need to break or indeed trigger a deeper retracement. That level is 1.3139 as you can see in the chart above.
Crude reversed off the recent target we had for it on Friday with a fall of 1.63% to $88.96 Bbl and you can see in the correlation with many other markets that this is a fear/USD move.
Consequently you won’t be surprised to see that Gold and Silver reversed recent weakness as well climbing 0.86% and 1.79% to $1654 oz. and $29.66 oz. Gold’s rally in particular dragged the Yellow metal back inside the big multi-year uptrend so it hasn’t broken yet on that basis as you can see in the chart above.
Nothing until Thursday night – so enjoy.
We’ll be back Thursday after the Christmas and Boxing Day Holiday’s here in Australia.