Macro Morning: Australian dollar rides the Dow

See the latest Australian dollar analysis here:

Australian dollar runs riot on BoJo win

We’re there!

Said Hilary to Tenzing as they reached the summit of Mount Everest. But as they gazed around them at the top of the world they new that there was only one place to go and that was back down.

The big question for us all today as the Dow has hit a new all time high and as the S&P butts up against long term resistance is whether or not this rally is sustainable and whether it has legs. Certainly the price action in Europe and the US overnight suggests that there are still more buyers than sellers and we know from the AAII sentiment survey that bullishness has pulled back sharply in the past 4-5 weeks. So the market is climbing the requisite wall of worry.

Bloomberg quotes noted investor Laszlo Birinyi this morning as waxing lyrical at and advising all these worry worts to get on board the bullish express. Bloomberg quotes him as saying:

People are now starting to realize this is a bull market…It’s not going to come back, you’ve missed the train, and the train still has a long way to go. but you better get on it.

Of course that could be the Irving Fisher comment of this market and we can come up with a host of reasons why longer term we remain concerned particularly the recent intraday volatility but this is a market to either be on board with or stand aside which is as close to bearish as we would be for the moment.

Looking at the technicals though the S&P 500 is right up on the long term trendline top that has been constraining it for a while now so there is still some resistance to stocks launching higher. But as you can see in the chart below our two moving averages never crossed even though the price fell through them so in the words of Jimmy R it is still a bull market. Importantly the lower line that the S&P is above on the chart below is the top of the uptrend channel from the start of the rally back in 2009.

s&p 500, spx, s&p 500 chart

This has been a rally of some duration, with many hiccups sure, and the Fed has done a great job of goosing the market higher. As Bernanke told us last week from where he sits it is all worth it if he can get more US citizens working – as a human I agree.

I must say though it is hard to fathom exactly why last night was the night that the markets decided to push higher. The data out of Europe was terrible and out the States while better was not exactly earth shattering. Sure in China the NPC said it would continue to use policies to keep growth on the 7.5% path and the strength of the ISM non-manufacturing PMI in the US which came in at 56 against the 55 expected seems to have helped. In Europe the raft of Markit PMI’s that were released showed both the surging gap between Germany and the rest of Europe but also showed the struggles that Europe continues to face.

Germany printed at 54.7 down from 55.7 last month but still healthy in the expansion zone. The rest of Europe were not so lucky with France marginally higher at 43.7, Italy a little weaker at 43.6. The overall EU services PMI fell to 47.9 from 48.6 while the composite PMI for the EU was also lower at 47.9.

Clearly Europe remains the clear and present danger for global markets.

But the European stock  performance belied the weak data with the FTSEMIB rising 2.78%, the German DAX rose 2.32%, the CAC was 2.02% higher and Spanish stocks rose 2.14%. In London the FTSE was up a more moribund 1.36%.

In the US at the close  the Dow is off its highs but still up 126 points or 0.89% to 14,254, the S&P has risen 15 points or 0.97% to 1,540 and the Nasdaq is 1.32% higher.

While stock markets will get all the press this morning the performance of the Aussie dollar since the low of 1.0115 the night before has also been spectacular. The rally off the low was compounded by the RBA’s decision not to ease rates after yesterday’s Board meeting. We felt it was a fairly innocuous statement which gave them wiggle room on either side. No cuts if they don’t need them but cuts are available if inflation stays subdued and the economy warrants. For them this is the perfect world a lot of room to cut if need be, plenty of cuts in the system and still working through and a globe that is healing somewhat (this last bit we might disagree with).

They did say the Aussie is higher than it should be – or words to that effect – but the market after an initial sell off back to 1.02 rallied up to a high of 1.0263 overnight and sits at 1.0250 this morning. Yesterday we said that we thought the RBA would support the Aussie and the question is how far can this move now go.

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

As you can see in the chart above the Aussie had a very long-legged candle on Monday as it rallied off the low and then followed up with a move to our fast moving average overnight. to the extent that the low was off the trend line that flows through the lows of the last year the 1.0115 low could be a solid one for now and certainly if this stock rally continues the Aussie has got some room to move – probably up toward 1.0350. Shot term 1.0290/95 would be resistance.

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

The euro, even though we like it heading toward 1.2650 in time, looks like it might strengthen a little on the technicals. Clearly it has no right to do anything but fall on the fundamentals but lets face it what do fundamentals matter when we have central banks distorting everything? We are at risk of getting on our high horse so we’ll cease there but it might be time for Euro to bounce a couple of big figures from here toward our slow moving average at 1.3150/60.

The US dollar did come back from the brink though overnight and GBPUSD failed to sustain its rally back almost unchanged on the day at 1.5116 after a high of 1.5199.

Global FX Commodity Daily performance

Likewise on commodity markets which were stronger across the board overnight Gold couldn’t hold onto the bulk of its gains and is up just 0.16% to $1,575. Silver did a little better up 0.63% to $28.63 oz. Crude is 0.81% higher at $90.85 Bbl. Corn was the strongest of the Ags up 1.38%, wheat was largely unchanged and soybeans up 0.42%.

Data

Australian GDP is due out at 11.30 Sydney time today with the market expecting 0.6% qoq and 3% yoy. Even though most of the inputs are known there is always a chance for a surprise here. Tonight it is EU GDP, US ADP employment change and BoC interest rate decision. Later in the night the Beige book is to be released and Factory orders are also out in the US.

Twitter: Greg McKenna

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