Macro Morning: Australian Dollar slide

What a volatile and nervous bunch traders and fund managers are. One day we read they are buying because of central banker “puts”, the next markets are down for the same reason.

I’m in the camp that says Bernanke will promise to do what needs to be done but that he can’t, or won’t deliver much more. Happy to be wrong but it seems to me Bernanke rules over a divided FOMC board. We’ll see.

Equally, the Spanish Prime Minister’s announcement that he wasn’t going for a bailout just yet while his regions continue to put their hands out for assistance weighed on Europe’s stock and bond markets. The FTSE was sold less heavily than its continental counterparts falling 0.42% while the DAX fell 1.64%, the CAC dropped 1.02% and Madrid fell 1.54%. Spanish bonds were up 16 point to 6.59% – not terrible but not good either.

The negative tone continued into the US session and the S&P 500 was down 0.78% to 1,399. I have my own process of melding fundamentals and technicals to forming the trading views you read here each day but you will have noted the prevalance and success of the simplicity in respecting trend lines and trading off of them. Such has been the case again in the S&P 500 over the past week or two. Very simple and very effective.

In other US markets the Dow was down 0.81% and the NASDAQ fell 1.05%.

On currency markets the Euro gave up early gains on a number of factors other than Spain and its enduring troubles. The Slovakian PM said the chances of a Euro break up are high and Joerg Asmussen from the ECB’s Governing Board was channeling his inner Jens Weidmann out on the hustings talking about ECB help only in concert with IMF and tight controls. Reuters:

From my point of view this means that the IMF will be involved in setting the economic adjustment programs because the IMF of course has unique know-how and has high leverage as an external policeman in these cases,

So the Euro slipped lower and sits at 1.2504 as I write.

The Aussie Dollar was also under pressure as the view on both it and the Australian miracle is being re-rated. It is at the low of the past 24 hours at 1.0284 and almost at my target of 1.0250. It looks biased lower unless Ben comes to Jackson Hole with his cheque book and the Aussie gets dragged higher by a risk rally.

Around the commodity exchanges of the world it was more mixed price action. If you want uncorrelated trade, commodities are your go! Crude and gold are the most interesting ones in terms of the macro implications. As you can see in the chart, crude slipped below but did not close below the trend line we have been watching. On that basis I am not going to call a turn yet but tonight’s weekly close will be all important. I’ll stick with a close below $94 Bbl as the signal Nymex crude is going lower.

On the gold market the drift lower after last week’s important break and close continues. Was it a false break? It’s looking like it but we’ll see how it closes the week tonight. On other commodities, OJ jumped another 1.95%, Cocoa also jumped again up 1.45% while the grains were mixed. Each morning I report what happened in a kind of detached manner but news overnight from the World Bank that global food prices jumped 10% in July is where the rubber hits the road – particularly in developing countries.

Lets have a look at some of the markets we follow using our AVATrade trading platform charts.

EUR/USD: We have a potential double top at last week’s high in the 1.2580/90 region and while a break of the highs sets Euro on a path to 1.2700-40 looks more likely to retest support at 1.2460 and then maybe 1.2421:

AUD/USD: Gonski – the AUD has broken below the 200 day moving average and is now on target for our target of 1.025. Below that it has Fibo support at 1.0230/35 and then 1.0190. In time I think it goes much lower but I expect some support to come in in the next 50 points.

DATA: No one really cares about anything else except Jackson Hole but I’ll be watching private sector credit here in Australia today.

Here is today’s data and you can click here for the full week’s calendar. Please note that data coloured blue is important to me and that which is coloured red is important to everyone.

And here is how the markets closed at 6.30 this morning courtesy of AVATrade

Twitter: Greg McKenna. He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

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