“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,”
This sub-paragraph from the FOMC Minutes of the July 31 – August 1 ignited a huge sell off in the US dollar and a recovery in US stock markets that had been languishing for most of the day. I’m not going to argue with the market price action because it accords with my view of where fund and money manager’s heads are at presently. But the minutes also say that there is still one recalcitrant who thinks the economy is at its potential and also that with all the uncertainty members want to do more homework to judge the pros and cons of further accomodation. So for mine QE3 might still be a little bit off.
But markets don’t care. They deal with what is in front of them and the Minutes were dovish and the US Dollar came under pressure and is now approaching important support, in USD Index terms, as you can see on this chart. Should the 80.90 level give way then we are off to the races on Euro and other currencies. But remember we also respect trendlines UNLESS or UNTIL they break. One thing though I would expect the Aussie Dollar to lag its bigger rivals as questions around the investment and mining boom grow – particularly after the BHP decision on Olympic Dam yesterday. In FX land, the Euro is up almost a full cent at 1.2527 presently from a low yesterday of of 1.2438 and a high of 1.2535. See technicals below for deeper insight. The Aussie likewise is up strongly at 1.0503 but day on day it is lagging the Euro a little. Sterling got a lift to 1.5872 and USD/Jpy is back below 79 on the USD weakness.
On stock markets, European equities were lower mirroring Asian weakness on the back of the weaker than expected Japanese data yesterday and more troubles in Greece with regard to their debt burden and a call from the Greek prime minister for more “breathing space” to get the economy going – where is Solon when you need him. So at the close of play the FTSE was down 1.42%, the DAX 1.01%, the CAC 1.47% and Madrid 2.58%. Spanish 10 year bonds rose 6 basis points.
In the US the Fed rode in on its white charger to save the day and the earlier weakness in stock prices was largely reversed post Minutes release. The S&P 500 ended essentially flat at 1,413, the Dow was down 0.23% and the NASDAQ was up 0.21%.
On commodity markets there is nothing like a bit of US dollar weakness to lift a few prices but overall the CRB was only up tiny to 308.02. My current favourite break out. Orange Juice ran another 4.23% – ain’t trend following grand! Crude ground out some further gains rising 0.63% to $97.45 Bbl. Gold was up $14 or 0.85% to 1,657 – watch the $1,665.50 level for resistance or a break.
Lets have a look at some of the markets we follow using our AVATrade trading platform charts.
EUR/USD: Euro is doing as expected and rallying – my little machine is long (not as sexy as OJ though) but the move through 1.2383 has kicked it resistance and still our target now 1.2572 and then 1.2740/50. Short term charts remain a little over done but the dailies are only just getting going. Don’t be surprised if we drive for 1.27 before turning:
AUD/USD: The AUD was under pressure as you’d expect with everything that went on yesterday and even though it broke down through the uptrend line it did not trade through the bottom of the 1.0400/20 region so no short would have been instituted and the move to 1.025 is not yet online. The high was 1.0517 for the second day in a row. Only 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: It is a huge night tonight with all of the European PMI data and the US Markit PMI as well. In this market, though, bad data is likely to reinforce notions of ECB and Fed action thus perversely driving risk asset prices higher.
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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