Vantage FX | Stocks up and Yen stronger again | 24th January 2013

January 24, 2013

Politics and pronouncements were the key drivers in a macro sense overnight. In the US the House voted to suspend the debt ceiling for 3 months forestalling problems for the stock market and opening the way for the economy and earnings to continue to drive prices higher. David Cameron announced an In or Out referendum for Britain’s inclusion in the European Union.

The IMF was also out with its latest forecast for growth which it downgraded by 0.1% to 3.5% and 4.1% for 2013 and 2014 respectively. Europe continues to be the laggard with growth expected to fall 0.2% in 2013 from the previously expected 0.2% growth,

Downside risks remain significant, including prolonged stagnation in the euro area and excessive short-term fiscal tightening in the United States

Elsewhere the UK’s employment data was better than expected which helped European shares initially. The claimant count fell by 12,100 against expectations of no change with the unemployment rate falling to 7.7% from 7.8% expected. These numbers in the context of an economy the size of Britain are small change but to the extent that they were better than expected then we get a reaction.

Equally interesting was the release of CPI in Australia yesterday. There has been many column inches written already but the 0.2% quarterly rise in headline CPI were a good number for the economy and the RBA. It does not guarantee a rate cut, not even close, but what this and the 2.4% annual rate do is make inflation a non-issue should the RBA feel it needs to cut at some point this year. For mine they are unlikely to cut in February and we’ll have to see how things progress in the months ahead.

In the US the data took a back seat to the earnings result that were released yesterday. Chip maker AMD didn’t lose as much as expected when it announced its earnings after the bell yesterday morning and was up 10% last night. Google shares were up 6.4% with strong profit and advertising revenue. Ibm was up 5% reporting its earnings in Q4 were up 6.3%.

Stocks

So with 21 minutes to go before the end of trade the S&P is up 2 points or 0.16% for another post 2007 high of 1495. The tech news has driven the Nasdaq up 0.54% and the Dow is up 0.38%.

In Europe a bout of profit taking on bank and financial shares limited the markets move higher. Like the US however some results of banner companies were not too bad with Unilever up 3.1% to a record high Reuters says after its results beat expectations. Novartis jumped 4.1% after its sales forecast.

In the end the FTSE was up 0.30% to 6198 to another multi-year high and the DAX rose 0.15%. The CAC however fell 0.40% with Milan and Madrid also lower falling 0.77% and 0.22% respectively.

In Asia yesterday the Nikkei lost 2.08% as investor fret over the Yen’s resurgence. As we note below USDJPY looks like it is going to have a meaningful retracement which would bias the Nikkei lower as you can see by the relationship between the Nikkei and the USDJPY moves recently.

Elsewhere the Hang Seng fell 0.10%, Shanghai rose 0.25% and the Straits Times in Singapore rose 0.35%. The ASX was up 0.19% yesterday after the CPI and BHP’s results and should rise again today.

Global FX

Lots of dancing on the spot in currency land over the past 24 hours. Euro stayed inside our box but traded a range of 1.3354 to 1.3263 but is closing roughly unchanged down 0.05% at 1.3312. It was a similar story with the GBP trading 1.5892 to 1.5800 but closing up just 0.03% at 1.5840. The Aussie Dollar is off 0.16% but up a little on the lows soon after the release of the CPI which was 1.0524. At present the Aussie is sitting at 1.0547.

USDJPY crossed my fast moving average yesterday but pulled up right in the middle of the Bollinger bands which is a signal to reduce positions but not yet exit. The Yen’s strength is clearly a result of two things. First it is always difficult for policy makers and central banks to live up to the hype if they conduct open mouth policy prior to the release of the actual policy or announcement. The second thing is that the crossing of the fast moving average highlights that we might finally be having the correction that we have to have.

My usual minimum correction would be to expect a pullback to the 38.2% retracement level of the recent up move which sits at 85.95. In this instance we have a couple of other levels to watch which 86.86, my slow moving average and 86.48 an old trendline. We have been waiting for the reversal for some time and it feels like it is upon us when I look at my indicators.

The Euro remains inside the box and it should be a good run when it eventually breaks out. The 1.3404 region is very difficult for the moment but equally 1.3255/60 is solid on the downside. We continue to think this is a small range to trade until it breaks.

The Aussie has its own trading range or Box in our terms for the moment with the parameters of 1.0480 on the down side and  1.0580/1.06 on the topside. The catalysts for a break seem absent at the moment so like Euro that forms the trading range but a break might reward for a run.

Commodities

Crude was 1.23% lower overnight falling back to $95.49 Bbl. Gold was off a little pulling back 0.38% but Silver continues to do its own thing rallying 0.82% to $32.21 oz. Copper fell 0.47% and it is being wedged by a big old down trend line and a short term but not insignificant uptrend support – ceiling and floor as my 10 year old says.

The Ags were lower with Wheat down 0.55%, Corn off 1.06% and Soybean down 1.02%. Sugar rallied a stellar 2.43%.

Data

Nothing here in Australia of note today but we see Chinese, French, Spanish, German, Italian and European manufacturing PMI data tonight. In the US jobless claims and Marki PMI and then the EIA crude oil stocks report.

Catch me on Twitter @gregorymckenna or @FX_Global

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