Vantage FX | Yen, Euro, GBP and Aussie surge on USD weakness | 7 June 2013

June 7, 2013

Recap

A huge night in FX markets as the US dollar came under sustained pressure with the Yen, Euro, Swissie and Pound all pushing sharply higher as it seems fears of a weak non-farm payrolls unwind much of the US dollars “tapering” strength. The Aussie also had a remarkable recovery off the low at 0.9423 yesterday. Concerns about the non-farm payrolls and the weight that a weak data print might take off the tapering talk resonated in Stock markets as well with a bug mid day rally in the US leaving stocks in positive territory and bonds down a little

Non- farm payrolls driving markets a day early

I spend a lot of my time talking about expectations and how often, actually usually, it is where the data prints relative to expectations that is more important than than the actual data print itself. In footy terms its like playing the man not the ball and its something I would tell my young bloke not to do when he is playing for the Nelson Bay Marlins under 11’s but in markets it works and it works well. Last night though was amazing however and really tells us what a hold that QE, bond buying and unconventional monetary policy has on the markets and trader psychology.

Now I was ready for a move tonight on the back of the data – I’m guessing a number around 120,000 versus the markets (at least the pundits) expectation for a number around 165,000/170,000 but after last night the question I’m asking myself is where is the market really betting the number will print. based on last night’s moves in FX and the recovery in US stocks my sense is that traders at least are betting that the recent run of weak data in the US is going to be replicated with a low number tonight and so a number on consensus is going to have an outsized impact compared to a number that is weak.

At the close the S&P was up 14 points or 0.88% to 1,623 after making a low of 1,598. The Dow was up 0.54% to 15,041 and the Nasdaq rose 0.66%. As you can see in the chart below the trendline has been rising as time goes by and the low last night was right on the line of support. This is the level to watch tonight.

In Europe the market closed before the strong gains in the US and the FTSE closed down 1.30%, the DAX fell 1.19% and the CAC dropped 0.61%. Milan was poleaxed falling 2.16% and in Spain stocks dropped 0.48%. Part of Italy’s problem no doubt is the alarming rise in peripheral bond rates with the Italian 10 year up a whopping 23 basis points – but only to 4.36% so its hardly punitive.

In Japan the Nikkei remains under pressure as flagged over the past few weeks in my Free Weekly Newsletter and I’ll update the outlook tomorrow morning but with the Yen so strong against the USD relative to recent moves the Nikkei still looks vulnerable.

US dollar hits the skids

An amazing move overnight with some huge ranges in the Majors, massive and remarkable moves really – just huge moves.

The Euro traded 1.3074-1.3304 to sit at 1.3245, GBPUSD was incredible trading 1.5380-1.5683 and sits at 1.5602 and the Yen had a big win against the USD trading 99.47-95.96 before bouncing back to 97.13 this morning.

These sorts of ranges in the three big currency pairs speaks of the kind of instability that the Fed, BoE and BoJ’s unconventional monetary policy is putting into markets. These are not unprecedented moves but they are certainly on the far right hand side of the bell curve.

As you can see in the chart above the Euro has broken up and out of the trend line and last nights move above 1.33 makes for a very ugly shoulder now on the putative head and shoulder pattern I drew a week back but this in itself is a lesson in how to trade esoteric patterns such as this – don’t pre-empt them wait for the levels to the downside to break.

On a night when FX traders were thinking about US economic data, its weakness and a postponement of the “taper” ECB boss Mario Draghi’s comments after the ECB decision to leave rates on hold that a recovery was on the way in Europe solidified my belief the ECB has no idea what it is talking about but reinforced to the market that the ECB is in no hurry to ease – so Euro got the double whammy positive push.

The Aussie was also volatile trading 0.9432-0.9673 and it sits at 0.9607 at the moment. The AUD low was just 20 points above the big support zone I have identified for a while now and the candle on the chart speaks of a potential bottom in the exact right place for the moment. Everyone is queuing up to sell the Aussie Dollar which is a necessary precondition for a sustainable bounce of 3-4 cents so we’ll see how we go. If and only if 94 break will I get uber bearish.

On Commodity markets Crude and Gold were both up more than 1% but copper fell 1.5%.

Data

In Australia today we have the AiG Performance of construction index before trade data in Germany, France and the UK tonight but it is non-farm payrolls that are the key in the close out to week’s end.

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