Vantage FX | Will the Aussie Dollar break lower even though stocks are rallying? | 9 May 2013

May 9, 2013

The Bull market in stocks just keeps keeping on and anyone who follows a trend following strategy is going to be making out like bandits at the moment because the rhetoric that so many have about what stocks should and should not do is lost on those that just follow the price action. Hats off to them because these guys trade in a manner that most people can’t.

But the big news is not that the trend followers are making money while others are nashing their teeth and wringing their hands the very big news as I said on Monday,

In the words of the great market trading gurus of the past – DON’T, DO NOT, FIGHT THE TAPE

I also felt although I can’t remember where I wrote it that we’d see some bears join the ranks of the bulls and so it was overnight that noted doom and gloomer Nouriel Roubini said (via the guys at Business Insider) that the rally could go on for a year or two,

“There are two forces,” he said. “You have the gravitational forces of the slow economy leading eventually to correction. But then the levitational forces of QEs, zero policy rates, more money coming in the market – not just from the U.S., but from other economies – it’s going to levitate asset prices.”

And while we have no idea on the duration of this rally – neither does Roubini for that matter – as we also said on Monday it is bad news that is needed to knock this rally rather than good news to feed it given the prevalence of QE and free money and likelihood that the ECB is eventually going to join the QE world.

Indeed in overnight action after the better than expected Chinese trade data yesterday the fact that German industrial production rose 1.2% which was higher than the 0.6% expected was almost a no brainer given the relationship we have observe between these data.

So the Euro rallied – we’ll get to that later – and stocks were higher with the FTSE up 0.39%, the DAX up 0.83%, the CAC rose 0.88% while in Milan stocks rose 0.78% and in Spain stocks rose 0.62%.

In the US it was more of the same with the Dow and S&P pushing to new all-time highs rising 0.32% and 0.43% respectively to 15,105 and 1,633. The Nasdaq rose 0.48%.

Turning to FX markets the Aussies lag across the board speaks volumes of the turn in sentiment. We have all heard about Soro’s bet on a lower Aussie earlier in the week and overnight his disciple Stanley Druckenmiller told the Sohn Hedge Fund conference that,

“We think the Australian dollar will come down and will come down hard… It’s expensive.”

Here at GlobalFX we were amongst the first to sing from this hymn book so we can only but agree and reiterate that we have a llifestyle short awaiting the tipping day when the Aussie does fall out of bed.

But that tipping point day is unlikely to be above the 1.0100/20 range bottom that we still see as our short term target. But when it goes our target is the 200 week moving average and another trend line from 2011 at around 0.9850.

You can see the weakness in the Aussie when you look at it on the crosses particularly against the Canadian Dollar which is doing well against the USD and also the EURAUD which is rallying

Watch out for the unemployment number today for a bit of an impetus for the Aussie. While we’ll stick with our lifestyle short into the figure we do not trade or punt this number – because of its inherent volatility we stop doing this back in about 1990. So be careful traders.

On other FX markets we got GBP wrong and thought yesterday mornings BRC retail sales might knock it lower but it was dragged higher by the Euro’s rally overnight. The Euro got close to the top of the 1.30/32 range/box making a high of 1.3194 overnight and it sits at 1.3156 this morning. As you can see in the chart below Euro is really going nowhere at the moment but a range break either way would be important for a week or two’s trade. We respect the range until it breaks but will run with the

Turning to commodity markets Gold and Silver are bouncing up and down within a range sitting at $1473 and $23.82 oz. If Euro is going to break out and USDCAD to head through parity then precious metals might also spike a bit higher as the USD weakens. Crude was up 1.04% in New York to $96.61 and Dr Copper was seriously encouraged by the Chinese and German data rising 1.83% in US trade.

Data

Unemployment in Australia is due out today with a rise of 12,000 jobs and a stable unemployment rate at 5.6%. In New Zealand employment data is also which mmay provide a trading opportunity for the AUDNZD rate.

Nothing much in the US but in the UK IP and a BoE are out.

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