Vantage FX | USD strength puts Gold and Yen under pressure | 3rd April 2013

April 3, 2013

Stocks were higher overnight, especially in Europe but it is hard to understand why. I saw a report from one of the globe’s biggest online brokers that said it was because the Euro Markit PMI wasn’t as weak as expected but that seems a very long bow given it was still weaker than last month. But whatever the reason stocks in Europe fairly surged with the DAX and CAC up just under 2%, the FTSE up 1.24% and Milanese and Spanish stocks up 1.41% and 1.64% respectively.

Stocks in the US were higher but nowhere near as bullish on the day but the Dow did manage a new intraday high at 14,684 before dropping back to 14,662 for a gain of 89 points of 0.61%. The S&P 500 rose 0.5% or 8 points to 1,570 and the Nasdaq was up 0.49%.

Data overnight as I noted was not as bad as it could have been in the Eurozone but it was hardly good news – but that is the key isn’t it. In the end it’s not about the data per se its is about where the data prints relative to expectations – Keynes beauty parade if you will.

As you can see in the screen snapshot from the FXStreet Economic Calender the data was actually pretty darn weak. Spain, Italy and France are all in the 44 region which is very weak while Germany has slipped back below the 50 zone and the overall Euro zone level of 46.8 ia down more than 1 full big figure from last month. So even though stocks were higher, perhaps on expectations the ECB will finally ease, the Euro was lower once again constrained by the 200 day moving average as you can see in the chart below.

Euro is back at 1.2815 after a high overnight of 1.2877 for a loss on the day of around 0.25%. There is a little trend line coming in at 1.2786 on the 4 hour chart so we’ll see how it looks if it tests this level. A break would open the way back toward recent lows.

Sometimes it is difficult to explain why markets move, sometimes they move counter to the way you think they should. Take yesterday’s RBA announcement that both left the door open for further easing and expressly noted the Australian dollar is higher than it should be. You could, perhaps would, think that the Aussie should have been sold off on the news yet the Aussie rallied to an afternoon high of 1.0479. Made no sense on the basis of Australian or Aussie dollar specific drivers but the Yen was surging at that time, the Euro rallying and Aussie Yen sinking – so there was your catalyst. Not exactly a direct route to Aussie strength but Aussie strength nonetheless.

This is something to keep in mind when trading and also one reason why some traders look at nothing but price action – I do both. Some systems are purely price driven and others are more subjective and meld fundamentals and technicals. Either way though the short term outlook for the Aussie is lower if 1.0439 gives way today.

Elsewhere in Global FX land Sterling rallied in line with the Euro but gave up all its ground and then some retreating from a high of 1.5258 to sit at 1.51 this morning for a loss of 0.83% over the past day. Also as noted above the Yen surged at one point falling right out of bed and making a low of 92.54 before the US dollar staged a rally to push it back to 93.37 where it is now. 91.40 has been our target and the question is whether or not the low yesterday has exhausted this target. On the 4 hour charts as you can see above there is a little trendline around 93.90 but USDJPY needs to push through 93.52 to kick on. As long as 93.90 doesn’t give way the 91.40 target remains.

Looking at commodities and it seems that the recent rally of gold is as good as it gets for the Yellow metal with both Gold and Silver under pressure overnight dropping 1.54% and 2.49% respectively. It is interesting to think about the moves in total overnight. Stocks higher, perhaps because the ECB might ease sometime soon but equally because of some backsliding on the Cyprus deal in favour of the tiny nation. The Euro slides, the yen is back under pressure, crude is lower and gold and silver get hit. It is clearly a US dollar move but gold is closing in on some important near term support on teh 4 hour charts as you can see below.

Support is $1,570 and a break of this level would open up a further $20 fall – we also respect trendlines unless or until they break. Silver is gone – $26.15 support and if that breaks its down toward $22.70.

Data

HIA New Homes sales and trade data out in Australia today then the official and HSBC service/non-manufacturing PMI’s in China. ADP employment data will give a lead on non-farm payrolls later in the week in the US and we’ll also see the non-manufacturing ISM in the US.

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