Vantage FX | Reversal, Data pushes Euro higher. AUD trying to break | 12th December 2012

December 12, 2012

The Australian dollar has broken higher against the US dollar and continued its push against the Yen overnight as the US dollar was weaker and stocks higher after the export data from the US disappointed.

Looking at the data the key outturns were the ZEW economic surveys in Germany and Europe which printed very much more positive than expected. Economic Sentiment printed at 6.9 versus expectations of -12 and from -15.7 last (nice call fellas 🙁 ) while the wider European ZEW sentiment printed at 7.6 versus 0.1 expected and from -2.6 last. The German current situation was 5.7 versus expectations of 5 and up from 5.4 last.

The other key out turn was the US trade data which showed a trade deficit of $42.24 Billion versus $-42.60 billion expected and $-40.28 billion last. But the devil was in the detail with the Commerce department reporting that exports fell 3.6% in October for the biggest drop since January 2009. Balancing this out to some extent was the fall in imports of 2.1% but both data speak of economic weakness at home and abroad. Elsewhere in the US Economic optimism collapsed from 51.6 to 45.1 and wholesale inventories were higher at 0.6% versus 0.4% which in combination with the above suggests this was an involuntary build.

Putting that in context for the FX moves overnight.

As readers know in my heart of hearts I can see why the Euro is anywhere above 1 to the US dollar but that’s not really the point is it. The price is the price and one of the important things to the price is the relative economic performance. Equally though from my experience it is often, or at least when it comes to markets, less important to what the actual data prints as compared to what the market pundits expect the data to print. It is this “surprise” that ends up driving markets.

Very helpfully Citibank publishes and Economic Surprise Index each week for a number of countries and the G10 which enables us also to compare the performance of nations and regions.

The chart above is from last week’s update and is about the US surprise minus the European surprise to get a sense of which region is surprising relative to the other. The US is in positive territory while the EU is negative. But as you can see the difference was already closing and the prints for US exports last night and the German ZEW index along with german exports a day ago would have seen this index move further in the Euro’s favour this week.

Which along with concerns about what the Fed might announce at its meeting this week helps explain why the Euro rallied.

Stocks

Before I give a wrap of the price action can I just say that the reports I am seeing about the US equity performance being based hopes for the fiscal cliff seems to me to be an ex-poste rationalisation of why the market went up on a day that the data wasn’t too good. I haven’t seen anything concrete overnight to back up this assertion. The best i can see is John Boehner have a bit both ways saying he is standing firm but “hopeful” about the talks.

Anyway Continental Europe had a better day reflecting the economic numbers with the DAX up 0.78%, the CAC up 0.94% and Madrid up more than 1.4% with Italy up 1.51%.  In the UK however the trendline we highlighted yesterday was big resistance again today and the FTSE lagged badly gaining only 0.06%.

In the US markets have rallied hard with the Dow up over 100 points at one stage and the S&P 500 materially improved rising to 1430 at one point as well. As I write though with 25 minutes to go the Dow is up 72 points or 0.55%, the S&P up 0.58% to 1426 and the NASDAQ up 1.40% with Apple leading the way higher.

In Asia yesterday Shanghai continued to march to the beat of its own drum falling 0.44% while the Hang Seng rose 0.21%. The Nikkei fell 0.09% while the Kospi rose 0.37% and the Straits Times was up 0.13%. In Australia the All Ords was up 0.42% to a 7 month high and SPI futures overnight are pointing to further gains today both here and in the rest of our region.

Global FX Markets

The US dollar was weaker overnight with the Euro rallying to a high of 1.3014 and is sitting at 1.3009 for a gain of 0.53% on the day at present. GBP was up 0.27 to 1.6116 and the AUD is up 0.34% to 1.0523 with a high of 1.0532. USDJPY managed to rally however by about 0.23% to 85.52.

Turning specifically to the Euro and its technical outlook, it is a little confusing at present. As you can see in the chart above the Euro pulled back to the blue line which is my slow moving average and often happens in an overall uptrend and even though my breakout system was stopped out on the pullback for a tiny profit the ADX suggests the Euro still has some residual positive momentum.

What to do? The Euro is off a little now from its highs now as US stocks are paring their previously stellar gains but I guess if stocks are going to rally the US dollar may lose its safe haven bid which could drive EUR high so aggressive traders or Euro bulls might want to be long with a stop below 1.2878 (usual caveats apply please see my disclaimer).

Turning to the Aussie there was a little excitement when I sat down in front of the screen this morning at 5am and saw the alert that at 3.12am  the battler had broken the big trendline stretching back to last year’s highs – but it has since drifted back a little as stocks in the US have drifted back.

Looking at the charts and thinking about the drivers of the Aussie dollar at the moment, particularly the more ebullient tone permeating the stock market is is hard to be anything other than bullish on the AUD. I’m sensing a move toward 1.06 is coming soon and then we’ll see how we go.

Commodities

This was the most interest set of markets for me overnight. Leaving aside Orange juices massive 3%+ jump the fact that Nymex Crude (initially at least), Gold, Silver and Copper went south even though the US dollar weakened suggests that concerns are gradually emerging about the global recovery. At least they might be because this was just last nights trade and will need confirmation in other markets and more days trade.

But please note this is of interest not a call but some trades might emerge so it always bears watching

At the close Nymex clawed back to be up 0.25% at $85.77 Bbl, Gold is down 0.22% to $1709 oz and Silver is off 1.23% to $32.89 oz. Copper was down more than 1% earlier but is now down just 0.56% while the big mover in the Ags was wheat which dropped 3.24% after the USDA forecasts a bigger domestic supply than had previously been forecast.

Data

Today in Australia we get Westpac/MI Consumer Confidence after yesterday’s poor showing on the NAB Business Survey (yesterdays post here). Japanese machinery orders are out later and Korean Money Supply data. India has Industrial output and then tonight there is a raft of European price data as well as Euro wide industrial production. Tomorrow morning we get the Fed announcement.

Please Note: All references to rates above are approximate and should not be used for trade reference.

 

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