Vantage FX | The Great rotation, Euro up, Aussie down| 14th January 2012

January 14, 2013

The Euro fairly soared again on Friday night as the US dollar came under a fresh assault from the single currency but stocks were more quiet at what seem to be very healthy levels given the underlying economic situation across the globe. Interestingly from where we sit the Aussie Dollar’s inability to follow the Euro higher could suggest that with the rotation that seems to be occurring in markets (see our piece on the “Great Rotation” from this  morning here) has some legs.

Clearly a large part of the Euro’s rally is technical and clearly a large part seems to be relief that over 2012 the chances of a Euro break up didn’t occur and seems to be receding. Equally given the time of year the moves are also probably a readjustment of positions within large investors and Money Managers portfolios.

So unless earnings season, specifically the financials in the US this week, pour cold water on the bulls they seem to have the ascendancy for the moment.

Reuters reported over the weekend,

An array of financial companies – including Goldman Sachs (GS.N) and JPMorgan Chase (JPM.N) – will report on Wednesday. Bank of America (BAC.N) and Citigroup (C.N) will join on Thursday.

“The banks have a read on the economy, on the health of consumers, on the health of demand,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

“What we’re looking for is demand. Demand from small business owners, from consumers.”

But it is not just earnings reports that will be the focus in the US or elsewhere this week as the data calender is pretty full too. European industrial production is out tonight along with speeches from Dudley, Lockhart and Bernanke of the Fed. There is a raft of European CPI data tomorrow night along with another Fed speech this time from Rosengren before the release of the NY Empire manufacturing survey, PPI and Retail sales data in the US and Plosser speaks as well.

In Australia we get TD inflation, Westpac Consumer Confidence, New Motor orders as well as Employment data this week.

So plenty of event driven catalysts for trade and my sense (ok it’s really a guess) is that Bernanke will talk positively tonight which might be good for stocks and the Euro but not for the USD or AUD potentially.

Stocks

Kind of a dull night really as markets digest the impressive start to 2013. Whether in Europe or in the US all markets flirted with negative territory for some part of the night and in the US markets case it was a struggle to move from negative toward positive or flat at the close.

So in Europe the FTSE closed up 0.34% to 6122, the DAX was up 0.10% to 7716 and the CAC was 0.08% higher at 3706. Milan was up 0.29% and Spanish stocks rallied 0.53%.

In the US the S&P 500 was down 0.01% to 1472, the Dow rose 0.12% to 13488 and the Nasdaq was 0.14% higher at 3126.

Global FX

As noted above Euro rocketed higher on Friday evening. We’d said we expected a pullback in our time zone Friday as Euro consolidated it gains. What we saw however was that the consolidation on the hourly charts was in time not in price (normally you get one or the other) and once Europe joined the fray again on Friday afternoon Euro rocketed higher once again as you can see in the chart below.

Equally in the chart we see the same set up as Friday – short term overbought which needs to be worked off either in time or price. My sense is we might get price consolidation this time but support will  be strong at 1.3321 and 1.3307/10.

GBP lagged the rally in the Euro after the release of weaker than expected industrial production data which rose only 0.3% versus 0.8% expected leaving the year on year number weaker as well with a fall of 2.4% year on year versus -1.9% expected. Manufacturing production was sharply weaker as well with a fall of 0.3% in November for a yoy fall of 2.1%.

Longer term when we look at the GBPUSD chart we’d say that unless or until it can get through 1.6180 that it is biased back toward 1.6100 from the current 1.6130ish level.

The Australian dollar remains strong but it has been unable to benefit from the Euro’s strength or positive flows from the AUDJPY rally. As we noted in out “Great Rotation” piece this morning could it be that there is money flowing out of Aussie dollars and assets at the margin into the trades with a better chance of big returns in 2012.

On the 4 hour charts the outlook for the Aussie appears to be for a deeper retracement back toward 1.0515/20 and if that breaks short term a move to 1.0470/75 is in train.

Commodities

Crude had a bit of a volatile night even though it only closed down 0.28% at $93.77 Bbl. Gold was off 1.03% to $1654 and Silver was 1.65% lower at $30.20 oz. I am watching these three markets for signs of a short term break lower.

On the Ags there was a bullish report on demand which saw Corn up 1.43%, Wheat 1.38% higher and Soybeans up 0.51%.

Data

Please see above.

Catch me on Twitter @gregorymckenna or @FX_Global

Social

Free Daily Market Update

Live Spreads

SymbolBidAskSpread

Spread

Sign up to the latest forex news and daily FX trading setups

Get started with a FREE $50,000 demo account