Vantage FX | US dollar stronger, gold, silver, crude Euro and Aussie lower| 1st March 2013

March 1, 2013

The US dollar steam rolled everyone and everything overnight as the buying continues to come into the buck and its trend to higher prices seems to be both reinforced and gaining momentum. Equally there were further rallies overnight for stock markets as fear washed out further and some German and US employment data gave some hope to the bulls. Gold was lower, the Aussie dollar had a shocker in terms of intraday volatility and the Euro slipped lower once again.

Looking quickly at the data the German unemployment rate held steady at 6.9% with a fall of just 3,000 in the unemployed but markets seem to have been happy that it wasn’t a bad result and as such it helped support European equities. In the US the GDP print  of 0.1% for Q4 was weaker than the 0.5% expected but in the grand scheme of things the difference between 0.1% and 0.5% annualised is a rounding error on the quarter and the market has decided to focus on the 0.9% growth in core personal consumption expenditures.

Market News International sort comment from the Director of Research James McAndrews of the New York Fed on the data and reports his response was,

We don’t draw too much inference in the trend rate of growth from the headline number of GDP.”

He noted that the growth in real final sales to consumers was “quite positive,” while the activity in autos, business investment, and home sales “are all things that we are looking at as very positive, things that are moving in a trend towards sustained growth.”

“We focus more on those aspects,”

And indeed the other data out overnight makes McAndrews’ point. The Chicago PMI bounced from 55.6 to 56.8 for a much better result than the 54.3 the market had been expected while jobless claims fell to 344,000 from 366,000 and the 360,000 expected. Falls in jobless claims have been a good indicator for the US equity market over the course of the GFC which to a certain extent belies the fear about the withdrawal of the Fed’s stimulus policy in a longer term and structural sense but the market is the market and when the stimulus does start to be withdrawn, even if it is largely because the labour market has improved and likely jobless claims are lower but that is a debate for another day.

Looking at the performance of stocks we see that at 7.05 with 55 minutes to go before the close the Dow is off its highs up 0.22%, the Nasdaq is also a little lower up 0.34% and the S&P 500 is up 4 points or 0.26% to 1521. From the charts this still looks like a topping pattern which doesn’t mean a crash or anything catastrophic necessarily but it remains a warning to investors to protect capital.

In Europe it was happy times all over the place. Spanish stocks rose 1.15%, the CAC was up 0.85% with the DAX up a similar amount while the FTSE and FTSE MIB were up 0.56% and 0.59% respectively.

ON FX markets the Euro is under pressure again as the US dollar’s rally continues. Euro had another 100+ point range day with a high at 1.3162 and a low of 1.3055 and it sits down 0.49% at 1.3074. Sterling had a small gain of 0.11% and sits at 1.5172 while USDJPY is up 0.44% to 92.61. USDCAD is still on a tear and is up 0.64% to 1.0292. This on looks like it is headed toward 1.07 possibly higher.

The chart above of the Euro clearly shows the risks of a deeper move. All we need to see is the Euro trade down and through the low of this week and the next leg toward our 1.2650 target will have begun. Equally this week’s low should be support but we don’t expect it to hold.

All of which points to an Aussie dollar that is under pressure and the price action yesterday certainly was ugly. Yesterday’s wild ride started with the stop run early in the morning taking it swiftly from 1.0200 up to 1.0245 and then back again before surging under the weight of a short market once again and aided and abetted by the Cap Ex data which prompted the CBA to put on a note to clients yesterday afternoon that the Mining Boom is not dead.

If you recall yesterday we said we thought Aussie would squeeze higher, which it did but only after falling half a cent first. Then as the market was clearly short it squeezed up to 1.0289/90 high before falling back under the weight of USD strength once again to sit at 1.0225 down about 20 points from this time yesterday.

The high of the past day was actually on an old trendline that has its genesis in the lows of 2008 and also our slow moving average on the dailies both of which suggests that the bias for the Aussie is still to the down side in a structural sense with last weeks positive move higher the only weekly advance of the past 7 weeks. Aussie still looks like it is having a round turn trip back towards 1.0098/1.0103.

Gold has now, or is now, closed lower for 5 months in a row. The reversal off the high of just two days ago has been pretty strong and brutal and technically in breaking back down through the trend channel points it lower again. As readers know we have been bearish for many months and remain so structurally. It doesn’t mean that we won’t trade the smaller waves and sometimes get it wrong on the day or the week and where we sit now is that we retain a downside bias and the fact that gold jumped more than the $50 we thought it would off the lows last week and has turned lower once again suggests some vulnerability in the price.

I have to be honest, I thought that gold would rally a bit further this week but the fall and the fact that it has now fallen for 5 months which is the first time in years I can see that gold has come under such sustained pressure and the fact that gold rallied to our slow moving average but was rejected at or around that price leaves the trend intact to lower prices.

In other commodity markets silver has fallen 1.74% to $28.44 oz and a break of $28.25 opens up the way to 26 bucks an oz. Crude was also lower, falling 1.06% to $91.78 a Bbl and it looks biased lower also. The Ags were stronger however with corn up 1.66%, wheat 0.53% higher and soybeans rallied 1.06%. Coton was another 1.83% higher.

Data

There is a raft of data to kick off March today/tonight. In Australia we get the AiG performance of manufacturing index before Japanese CPI and unemployment data and Korean Trade data. In China we have the NBS manufacturing PMI and the HSBC PMI out before we get UK house prices and German retail sales which will be super important. Then there is the suite of European Markit PMI data along with the Brazilian HSBC equivalent and then the US Markit PMI along with ISM and vehicle sales.

So a big night of data and one which will give a pointer to where the economies are headed.

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