Macro Morning: Australian dollar reversal

See the latest Australian dollar analysis here:

Australian dollar runs riot on BoJo win

Stocks in the US are off their highs for the day and the S&P in particular has been hit and pulled back from the trend line I highlighted yesterday as a possible constraint. Fresh signs of strength in the labour market in the US with the release of the ADP Private employment survey was the catalyst for the rally early printing 198,000 private jobs in February which was higher than the 175,000 that the punditry had expected. But perhaps the more modest growth shown in the Beige Book released around 6am Sydney time this morning has taken the wind from the markets sails a little.

Earlier in the night European stocks were under pressure with some concerns that the GDP print for Q4 which confirmed the read of a contraction of 0.6% for the quarter and 0.9% for the year of 2012 could prompt the ECB to ease rates at tonight’s meeting. That might be the case and I would hope for the sake of the millions of European unemployed that this comes to pass but more likely is the strict doctrinaire policy prescriptions of the ECB and its political masters toward austerity and shrink your way to growth is the likely road for Europe to travel.

As we close in on the end of trade in the US the Dow is up 0.26%, the Nasdaq rose 0.1% and the S&P is up just 1 point now at 1541. In Europe the FTSE fell 0.06%, the CAC dropped 0.35%, Milan’s stocks dropped 0.47% and in Spain stocks fell 0.76%. In Germany the DAX bucked the trend and rallied 0.62%.

The S&P’s rally is still constrained by the trend line I highlighted yesterday as you can see in thee chart above.

US strength, relatively anyway, saw the euro and pound once again under pressure. Sure the release of the Fed’s  Biege Book showed that government fiscal and health care policies are holding back private spending and hiring and that higher petrol prices are also weighing on consumers, but 10 of the 12 Federal Reserve districts are growing modestly with Boston and Chicago’s growth slow.

That is not a great result but in the relative ugly contest that is global FX markets slow or modest growth is still better than no growth.

eur, eurusd, euro, euro (eur) price quote

Looking at the euro’s price action I’d say that the move toward 1.2650 might have stalled for the moment but I remain committed that it is coming. While above 1.2970 it is holding but a fall through here will signal the next move lower. My trend systems are still short.

The Aussie has had a massive three days trading to a low of 1.0115 and a high yesterday of 1.0300 and it sits this morning at 1.0237. The rally yesterday after the GDP was clear as a result of a market caught short. I thought that the Australian economy has been weak and that we’d see a result lower than the 0.6% expected. So I was short going into the figure at 11.30 yesterday which didn’t work out too well so it’s back to the usual rule of not punting figures because they are so random. A lesson relearned.

This is one of my big issues with the release of statistics such as GDP  and other data. Over the past 25 years the number of times that I have seen the data distorted by these sorts of government outcomes on either side of the ledger is amazing. The Aussie  GDP result of 0.6% was almost entirely a construct of the government sector. Yes Australia had a positive contribution from Net Exports but as our colleagues here at MacroBusiness  pointed out after the data was released it was the transfer of some large projects into public hands that was the big driver.

Obviously the post data rally and the positive reporting in the press initially didn’t bother to delve deeply enough into the data and the rally fizzled overnight with the Aussie’s high at 1.03 reversing and the Aussie now sits at 1.0237. The Aussie chart is a bit ugly trading roughly 200 points in the past 3 days and back towards the middle of the range again today. At least in a Darvas sense we can say the Aussie is in a 1.01/1.03 box and trade that range but on our usual indicators it still seems to be biased lower.

aud, audusd, australian dollar, australian dollar price quote, audusd

On the 1 and 4 hour charts it looks like the Aussie is biased back toward 1.0215 and if it falls through this level it could cascade lower.

Turning to Japan and the trend toward yen weakness might have slowed recently but China is clearly watching and concerned. Overnight the President of the Chinese Wealth Fund the CIC Gao Xiqing had some fairly forthright thoughts for Japan when he said:

Treating the neighbors as your garbage bin and starting a currency war would not only be dangerous for others but eventually be bad for yourself…

Strong words but what the Chinese might do about it is a different thing because they are already keeping their currency artificially weak and would have to deal with the Americans if they do try something but those old currency warriors seem to be sharpening their swords.

Chart wise the USDJPY was up overnight but is still yet to take out the recent high on the dailies. Has the recent reversal built momentum for a further rally? Possibly, a break of the recent high would confirm:

jpy, usdjpy, yen, dollar yen, dollar yen quote,

On commodity markets Nymex crude is off 0.44% which isn’t a bad result when you take into account the massive build in EIA inventories last week. Crude looks a lot like the euro chart insofar as there might be a shorter term floor around the recent low at $89.30. While it holds that crude can build a base but a move through here could open a substantial push lower, perhaps even back toward $85.00ish Bbl.

Gold is hardly changed at $1575 oz but silver the more volatile in this precious relationship is up 0.9% to $28.82 oz. Silver is still in a down trend by our usual indicators but the low on the bottom of the down trend channel suggests it might have a slightly better technical structure and thus more support or impetus to rally than gold.

silver, xag, xagusd, silver daily chart

The Ags were down sharply with Corn off 2.87%, Wheat was 2.12% and Soybeans fell 0.74%

Data

In Australia the AiG Performance of Construction Index is out this morning before the trade data. Then we have the BoJ which will be a potentially huge event for global markets. In Europe tonight French data includes unemployment, Budget for January and trade data. Portugal has a bond auction, German factory orders and then BoE and ECB monetary policy announcements. Of course it is jobless claims night in the US as well.

Twitter: Greg McKenna

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