Macro Morning: Risk rally extends

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Whether it was seasonal bullishness of simply less concern about the fiscal cliff doesn’t matter because stocks and risk extended their rally overnight dragging the Aussie dollar higher and pushing the US dollar lower once more as the usual correlation asserted itself.

Housing data in the US was good last night as well. The NAHB housing market index rose from 41 to 46 in November while existing home sales increased from 4.69 million pace to 4.79 million while existing home sales increased by 2.1% in October. This continues the run of better than forecast data in the US which is an important psychological input to traders as we discussed yesterday in our piece on the potential stock market rally.

Elsewhere though the battle in Israel and Gaza intensified pushing crude oil prices sharply higher on fears of escalation and interruption to supplies from the region. Is this a credible concern or just an ex-poste rationalisation for the move? Probably the latter.

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Data in Europe, Italy specifically, was pretty poor overnight with industrial sales and orders accelerating their yearly declines down 4% and 4.2% respectively in September. But that didn’t stop European stock markets from both playing catch up from Friday’s close and then adding some good old rallies of their own. At the close the FTSE was up 2.36%, the DAX (which bounced nicely off support Friday last) was up 2.49%and the CAC rose 2.93%. Madrid was up 2.28% and Milan 3%.

In the US, it has been a huge night for Apple which has moved sharply higher up $34.59 or 6.56%. Equally it has been a good day’s trade for the bulls on the markets more broadly with the S&P 500 up 1.75%, Dow up 1.40% and the NASDAQ up 2.03%. The corollary of this of course is that US Treasuries have moved up sharply in yield.

As noted above crude rallied hard and is up 2.69% to $89.25 Bbl for a quite decisive break of the downtrend that has been in force for the past couple of months. This rally could extend as far as $92 Bbl. Gold was also higher which suggests that both its move and crudes and copper and other commodities had benefited due to the fall in the USD’s value. Gold is at $1710 oz, up 1.15% as I write with silver 1.21% higher.
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On Global FX markets the Aussie is getting dragged higher by the better tone in equity markets which is interesting because it had been doing its own thing for much of the equity market sell off until it hit the acute phase late last week. The story floating around that the IMF is to include Aussie and Canadian dollars in “official” reserve assets will certainly underpin from a fundamental point of view as well.

Elsewhere the USD came under pressure last night as stocks extended their bounce with the USD Index pulling up right at the 200 day moving average support last night. The USD’s struggle was reflected in a weaker USDJPY which topped out at 81.58 before it slipped back toward 81.00 and it sits presently at 81.18. Support remains 80.65 on the day and if that gives way then 80.30 and 80.18. Yesterday’s Japanese leading index fell from 93.2 to 91.6 previously reinforcing to me the longer term trend that is beginning to assert itself in the USDJPY.

Lets have a look at some Meta 4 charts from my AVATrade platform.

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EUR/USD: The EUR rallied hard and is up 0.53% at 1.2803 but off the high of 1.2819 overnight. This is a very strong move off the 1.2728 low and I confess that even though I was bullish stocks yesterday I thought the USD might break the negative correlation and go with it. Seems I was wrong:

AUD/USD: Short term the old uptrend line is at 1.0414 this morning and has so far proved resistant to further rallies. If it can push through here then the next resistance is 1.0440/50:

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Data: In Australia we get the Conference Board leading index and then the RBA Minutes. The BoJ’s monetary policy announcement and press conference will be a huge event for FX traders interested in the take on printing so this is one to watch later today. Tonight in the US we get more housing data

Here is how the markets looked at 7.11 this morning.

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Twitter: Greg McKenna.

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