What a wild day the last 24 hours have been – there will be plenty of traders licking their wounds this morning after stocks, currency and commodity markets moved through wide ranges before snapping back.
Yesterday morning in Australia as the News hit that Ford is pulling out of local manufacturing the Aussie dollar was trading in the 0.9680 region but as the rumours turned to fact it dropped to 0.9650 before breaking down in the 30 region. It rallied in the lead up to the HSBC Chinese PMI getting back into the 60’s before the data printed below 50 and in the contraction zone and Aussie buyers evaporated and when the Nikkei and Yen joined the fray later in the day the Aussie made an eventual low in the 0.9590 region.
Speaking of the Nikkei as you can see in the 5 day chart it fell completely off a cliff yesterday closing at 14,483 for a loss of 7.32%. Exactly what drove the Nikkei’s fall is hard to know – some reports yesterday were that it was the Chinese data, some suggest that it was a result of the Fed statement the night before and of course it came while the Yen was suddenly strengthening yesterday so maybe that played a role.
From where I sit it is hard to know but there is going to be a retracement of sorts today after the US markets recovered well from their lows even if Europe struggled under the weight of the Fed statement and Japanese stock fall. The fact that USDJPY is 100 points off its low of 100.82 is also a positive for stocks on the day but I strongly believe that volatility begets volatility – as we saw in the Aussie Dollar recently – so it appears that stocks globally and the Nikkei in particular are entering a interesting phase.
At the close in Europe the FTSE was 2.09% lower, the DX was off 2.10%, the CAC fell a similar amount down 2.08% wil in Milan stocks dropped 3.06% and in Spain stocks were 1.40%. But US stocks recovered from early weakness as Jobless claims fell 23,000 to 340,000 and the Kansas City Fed index popped to 5 against expectations of -5. Equally most of the PMI’s in Europe and certainly in the US were slightly better than expected.
So at the close the Dow was only down 0.08%, the Nasdaq down 0.12% and the S&P fell 0.26%.
Yesterday morning I wrote,
If I use my usual trading system I would now say that I expect a test of support at 1639 and if that level gives way a move back to 1616. If that level gives way then we are in for a deep retracement.
We saw that overnight even though we did have a recovery and the 1616-1639 zone now looks like very important support. My outlook based on the technicals is for a retracement into this zone again and if the lower bound breaks then 1590, 1570 and ultimately if the sell off eventuates or gets legs 1520 is massive support. On the topside a break of recent highs is needed to change the outlook.
Getting back to currencies and the Aussie dollar I’m sure all readers at some point will have played with an elastic band and know that you can only stretch it so far before it snaps back. the Aussie has been searching for that point now for a week and the proximity of last years low at 0.9570/80 yesterday when the Aussie dipped below 0.96 seems to have been the point.
In many ways now the Aussie chart is the reverse of the S&P 500 chart above. We have had a sharp fall, approximated an important support zone and bounced back strongly with the Aussie around the 0.9750 region this morning. 0.9840 is the key overhead resistance representing the lower trendline on the chart above which was supposed to be previous support on teh way down but has already proved to be resistance since the fall. A break of that level would open a run toward 0.99. AUDJPY is also interesting and supportive of at least a consolidation in the AUDUSD as the low yesterday was exactly synchronous with the trendline going back to the start of the big AUDJPY rally last year.
As noted above the USDJPY moved through a huge range yesterday making a low of 100.82 after a high of 103.57 and it sits this morning at 101.96. Euro also had a big range and Euro is back in the zone where it broke down from after Bernanke’s comments on tapering the other night. Short term Euro looks like it might struggle a little with only a break of 1.2960 opening further upside.
On commodity markets crude was largely unchanged, gold rose 1.78%, silver was 0.16% higher but Dr copper fell 2.31%.
Kiwi export and import data is out this morning and then German GDP for Q1 tonight along with the Ifo business survey. In the US durable goods are out.