There are a number of interesting themes being widely discussed today, and a series of trades that are getting more attention.
Firstly, there are a handful of global indices testing either all-time or multi-year highs and momentum traders would certainly be looking to buy the break outs here. Moves in the ASX 200 have been discussed and the index stopped five points shy of the October highs and a break here would certainly be welcomed by the bulls, although a few signs suggest the index is overbought. The S&P 500 is also in striking distance of printing a higher high and ultimately blue sky territory.
The Canadian dollar looking vulnerable
You can also look at big moves in natural gas of late and again trend followers have been all over this trade. On the forex side, moves in USD/CNH (offshore Rinminbi) have seen another move higher today, and while this pair is rarely traded by retail traders, the moves higher have a few questioning how much further it can go, especially given the levels of positioning in the market. The CAD (Canadian dollar) has taken the place of the AUD as the currency of choice to short by macro-focused traders, especially ahead of today’s Canadian CPI. Long AUD/CAD seems to be working quite well, and while I don’t usually pay too much attention to golden crosses (i.e. the 50-day moving average crossing above the 200-day moving average) the signals generated over the past five years have been fairly reliable, so yesterday’s bullish cross has been noted.
Long EUR/CAD positions are also attractive, especially with a break of the January 29 high looking likely; from a trend and momentum perspective I’d be staying long this cross for a move to 1.5500. USD/CAD looks set to test 1.12 in the short term, and while today’s CPI print is expected to tick up slightly to 1.3% (from 1.2%), there are economists calling for a fall, which would send the CAD lower.
(Daily chart of EUR/CAD)
Asian markets are generally flat, although Japan is flying and seeing an extension of the short-term uptrend and could be set to move back above 15,000 in the short term. USD/JPY seems quite comfortable around 102.00 to 102.50, and our clients seem to echo this with a 51:49 split in terms of new open long/short positions today. Still, it still feels logical that for USD/JPY to push convincingly above 103.00 we are going to need to see better selling in US treasuries, thus taking the yield premium over Japanese government bonds (JGBs) higher.
The ASX 200 eyeing a break of the October high
The ASX 200 is also doing nicely, and as mentioned is looking to take out the October high of 5457 and print a higher high. Earnings have been quite indifferent today, with good numbers from IAG, who showed improved underlying profitability in all divisions.
On the other side of the spectrum, the market has been disappointed with numbers from STO and CWN, while NAB underwhelmed on its Q1 trading update. Analysts would certainly have been disappointed by the bank’s margin performance and the market has pushed the stock down around 2%. Still, most of the buying has been seen in the materials space today and rotation into this space continues, with the sector up nearly 6% this year, just lagging behind the utility sector.
I mentioned AUD/CAD looks good for a bit more of a bounce, however it’s interesting to see a number of local brokers talking about buying dips in AUD/NZD for a move as high as 1.20 over the medium to longer term. Certainly I would echo thoughts that the lows have been seen in the pair, and my bias would certainly be long; however I think 1.20 is fairly optimistic.
European markets are likely to open higher and the bias from clients in our European out-of-hours markets has been weighted heavily on the long side. US futures have started to move higher and are currently up 0.2% and clearly moves in Japan seem to be supporting. Existing home sales in the US could see weakness, given what we’ve seen of late in pending home sales, while UK retail sales should continue its solid advance. Still, we are looking at the DAX which on our call is just under 2% from printing a new high, the FTSE which should spend another day above 6800 and the MIB which is also very close to printing a higher high. So the bulls once again seem to be getting the upper hand right now.