Ambrose Evans Pritchard wrote an article in the UK Telegraph that I tweeted early yesterday morning, after this note was published, saying that the Telegraph could confirm that the discussions that were scotched by the ECB the previous night on caps on bond spreads had indeed taken place. Regardless of the fact that it’s a dumb idea, markets ran it.
At the close both the Madrid stock index and the CAC in France were up 0.94%, the Dax rose 0.74% and the FTSE was up 0.57%.
That the Telegraph report was taken at face value and a rally ensued seems to continue the shift, or at least the perception a shift, in the way that the ECB and European politicians approach this crisis. That is a powerful message about market psychology and positioning – even if it still feels fragile to me. Times like these you run with the heard but watch for the cliff.
In the US, markets weren’t quite so ebullient at the close with the S&P 500 pulling back after making a multi year high to close down 0.35% to 1,415. Why markets pull back from highs, particularly when you see what happened elsewhere, is always a difficult thing to explain but they do it all the time. As you can see in the chart of the S&P 500,45 there is the top of a channel that last night’s price action pulled up at. The candle is a bit ugly for mine and other techincal indicators suggest that that might be it for this run and the S&P 500 might pullback to find support. The Dow finished down 0.51% and the NASDAQ dropped 0.29%.
On commodity markets the CRB was up a little under 1% to close at 307.63. Orange Juice was on an absolute tear over night rallying 7.07%! Moves like these just highlight why a diversified portfolio of markets using a trend following approach can reward if risk is managed properly. The grains were through the roof as well again with soybeans up 2.83%, wheat 2.09% and corn rose 1.79%.
On the industrials Dr Copper was up more than 2%, silver continues to be well supported rising 2.13% while crude was up 0.45%.
In FX land the Aussie pushed off the bottom of the up trend channel reinforcing once again why you must always respect trendlines until they are broken. The Euro was buoyed by better expectations trading from the mid 1.23’s yesterday morning up to a high of 1.2484 and it sits near the high around 1.2471 presently. Stirling was dragged higher and with the USD under pressure across the board USD/JPY slipped a little
Lets have a look at some of the markets we follow using our AVATrade trading platform charts.
EUR/USD: Note to readers – this is why we have stop entries into the market – Euro had been boring me to death but as I said over the past few days if it moved through 1.2383 then it could kick on. It did and it did. 1.2420/40 is key short term support and then. Resistance and target now 1.2572 and then 1.2740/50. Short term charts are a little over done but the dailies are only just getting going:
AUD/USD: The AUD’s up trend was supported again yesterday and it bounced to a high of 1.0517 before pulling back with the US equity markets overnight. The bottom of the trend channel is 1.0432 this morning but a break of 1.0400/20 would still be needed to signal further downside perhaps toward 1.0250 If it gives way. Topside 1.0515/20 is initial resistance and then 1.0560/70.
DATA: Westpac Leading Index for Australia and Skilled Vacancies today and then the FOMC minutes early tomorrow morning.
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 6.00 am 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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