The release of the much weaker than expected Chicago PMI data overnight which showed a fall to 49 from 52.4 last and the expectation of 52.5 failed to shake stocks with the S&P 500 closing on a new all-time high but it certainly shook the foundations of the US dollar which fell 1 cent against the Euro in the blink of an eye. how this can be when the European unemployment data earlier in the night showed further deterioration in unemployment picture is difficult to fathom. Equally in the context of the better than expected result in the rise of the Case Shiller home price index, up 9.3% YoY in Feb, and the huge surge in Consumer Confidence from 61.9 to 68.1 the Dollars weakness is hard to fathom.
As the chart above shows this US dollar weakness has driven the Euro back toward the top of the 1.30/32 box or range it has been in for a while now. One of our favourite risk reward trade set-ups is a top, retracement and then break (the reverse is also true) which then usually projects a move toward 1.382 of the move.
So the key levels in the EURUSD to watch are 1.31995 with a break projecting 1.3374.
But it wasn’t just the Euro that benefited overnight with the Yen strengthening and USDJPY lower but it’s the Canadian Dollar which is heading back towards 1:1 with the USD that is also a major beneficiary and the AUDCAD rate that shows that the Aussie is lagging on this bout of US dollar weakness which reinforces to me and us that even though the Aussie is up this week from the open around 1.0270/80 the outlook has soured a little for the battler recently vis a vis its previous place in the pantheon of currency gods.
AUDCAD is very close to breaking down and a push below 1.0380 which is the 200 day moving average would signal that the current break is confirmed and target 1.0233.
Interesting also and a signal that perhaps the currency game is changing a little is the fact that the AUDNZD had a small rally signalling that the Aussie Dollar outperformed the Kiwi which has done so well it pushed AUDNZD down below 1.21 when the “fundamentals”, such as they are, suggest something closer to 1.26/28. We’ll keep and eye on the Aussie and the Kiwi and in particular Dr Copper which was down 1.10% overnight because they are signalling that the global economic reality is seeping into FX markets and that has big implications across the board.
Before we move onto stocks its worth a quick look at the Yen.
The chart above shows the Yen strengthening with USDJPY sitting int eh support zone we have identified this week as key to the outlook. the low overnight of 97.01 is right at the bottom of that zone and a print in the 96’s is likely to bring in further selling. As we noted on Monday,
Japan is clearly far from fixed but to the extent that the Abe Government and Kuroda BoJ have made an impact on USDJPY which has weakened 25% against the USD and by implication a little more against the CNY and the Won then you might say job done for a while. Equally as I noted above the inflation expectation is for the rate to be close to target in roughly the time frame set then perhaps the topside pressure on USDJPY has reduced for a while – time will tell.
We continue to hold that view and with the data this week being on the globally weak side Yen strength may return for a while.
Turning now to stocks and at the close of play the S&P made another marginal new high up 4 points or 0.28% to 1598. The Dow was up 0.14% to 14840 and the Nasdaq rose 0.66% to 3329. in Europe the FTSE was down 0.43%, the DAX managed to rise 0.51% and the CAC, Milanese and Madrid stocks all fell losing 0.30%, 0.96% and 0.38% respectively.
It is interesting to see the differing outlook between the stocks in the US and the US dollar and then the performance of the Aussie and Kiwi dollars which lagged and Dr Copper which fell. The outlook is certainly turning economically and the performance of stocks in this generally weaker May to November 6 months will be interesting to watch. Tonight Fed Statement after their meeting will be interesting to see.
On commodity markets as we noted Copper was down as was Nymex crude which fell 1.58%, Natural gas fell 1.16%, gold was up marginally to $1476 and on the Ags Corn fell 0.11%, Wheat rose 1.69% while Soybeans fell 0.27%
It’s May the First so it’s the Labour day holiday in Europe. In Australia today we get HIA new Home Sales and in China the NBS Manufacturing PMI. ADP employment is important in the US in the run up to Friday’s non-farm payrolls and the Fed is crucial tomorrow morning.