Macro Morning: Gold tanks

Last night was one of US dollar strength with USDJPY reversing yesterday’s weakness, Euro and GBP unable to sustain their up moves  and gold coming under intense pressure. The reason is hard to fathom given that stocks, especially in Europe were so strong. Perhaps it was news of a little bit of backsliding over the Cyprus timeline but I don’t buy that as that horse has bolted. Perhaps it was the fact that the EurozonePMI’s were all weak and weakening raising the chances of an ECB cut.

I don’t really know but in a world where stocks are goosed by central bank actions and currencies hit by the same this seems the most likely culprit – at least on the surface anyway.

To the data – as you can see in the screen snapshot from the FXStreet Economic Calender the data was pretty darn weak. Spain, Italy and France are all in the 44 region which is very weak while Germany has slipped back below the 50 zone and the overall Eurozone level of 46.8 is down more than 1 full big figure from last month.

Markit PMI's

So on this basis it is no surprise that the euro was lower and dragged sterling with it as well. Euro is back at 1.2815 after a high overnight of 1.2877 for a loss on the day of around 0.25%. There is a little trend line coming in at 1.2786 on the 4 hour chart so we’ll see how it looks if it tests this level. A break would open the way back toward recent lows. Sterling rallied in line with the Euro but gave up all its ground and then some retreating from a high of 1.5258 to sit at 1.51 this morning for a loss of 0.83% over the past day.

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

Yesterday in Australia the RBA could not have been more explicit either in their love for China or their belief that the Aussie is too high and inflation leaves them room to ease. Indeed the NAB still thinks there are more easings coming and based on their business survey results and trends I agree with them. But with the shenanigans going on with the yen yesterday afternoon in the lead up to and after the RBA announcement the Aussie rallied when the dovish tone of the communique might have seen it fall. Such is the way of markets, they don’t always do what you think but I have some shorts on now expecting the Aussie to maybe trade a little lower across the day.

jpy, usdjpy, yen, dollar yen, dollar yen quote, 4 hour chart

The yen surged at one point falling right out of bed and making a low of 92.54 before the US dollar staged a rally to push it back to 93.37 where it is now. 91.40 has been our target and the question is whether or not the low yesterday has exhausted this target. On the 4 hour charts as you can see above there is a little trendline around 93.90 but USDJPY needs to push through 93.52 to kick on. As long as 93.90 doesn’t give way the 91.40 target remains.

Looking at equities, stocks in Europe fairly surged with the DAX and CAC up just under 2%, the FTSE up 1.24% and Milanese and Spanish stocks up 1.41% and 1.64% respectively. Stocks in the US were higher but nowhere near as bullish on the day but the Dow did manage a new intraday high at 14,684 before dropping back to 14,662 for a gain of 89 points of 0.61%. The S&P 500 rose 0.5% or 8 points to 1,570 and the Nasdaq was up 0.49%.

Turning to commodities and it seems that the recent rally in gold is as good as it gets for the yellow metal with both gold and silver under pressure overnight dropping 1.54% and 2.49% respectively. It is interesting to think about the moves in total overnight. Stocks higher, perhaps because the ECB might ease sometime soon but equally because of some backsliding on the Cyprus deal in favour of the tiny nation. The euro slides, the yen is back under pressure, crude is lower and gold and silver get hit. It is clearly a US dollar move but gold is closing in on some important near term support on the 4 hour charts as you can see below.

xauusd daily, gold, xau, gold price quote

Support is $1,570 and a break of this level would open up a further $20 fall – we also respect trendlines unless or until they break. Silver is gone – $26.15 support and if that breaks its down toward $22.70.

Data

HIA New Homes sales and trade data out in Australia today then the official and HSBC service/non-manufacturing PMI’s in China. ADP employment data will give a lead on non-farm payrolls later in the week in the US and we’ll also see the non-manufacturing ISM in the US.

Twitter: Greg McKenna

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Comments

    • Deus Forex Machina

      Fundamentally I don’t know – but technically it has looked terrible for a while now broken down through a pennant and couldnt get back into it.

      Also there seems to be a lot of silver bulls still around maybe Bullion Baron has a better take on things if he sees this???

      One thing I would note is the guys at market anthropology have been on this for ages with regard silver.

      Cheers

      Greg

    • The commitment of traders report (for the COMEX) points to reasons for recent price weakness. Large speculators (managed money/hedge funds, etc) have tripled their short contracts since November 2012 (doubled in the last month alone), this is putting short term pressure on the price, but is also setting up for one heck of a short covering rally once the worm turns. My concern would be if they manage to push the price below US$26, but as of last Tuesday they were already short more contracts than anytime since 2005… in my opinion the next big move will be to the upside, but will have to wait and see.

      For further reading would recommend:

      http://therefinedinvestor.com/2013/04/silver-fireworks/

      • Silver sentiment is currently lowest in a decade (yes even lower than when it crashed in 2008):

        https://twitter.com/bullionbaron/status/319253391631069184/photo/1

        Even if Silver does manage to breach US$26 to the downside (which I think is unlikely) it’s very possible that we only see a quick run on stops under this level before reversal and price heads higher.

        Contrarian investors/speculators who think the precious metals are heading higher in the medium term would likely do very well buying these price levels given indicators we are seeing in sentiment & COT reports, see my post here on Gold (much same for Silver):

        http://www.bullionbaron.com/2013/02/when-to-buy-gold-timing-market.html

        Those that think that the bull run is over in metals should be very wary of a break in Silver below $26.

        • Deus Forex Machina

          $26ish is the full retracement of the move and should be solid as you say…a breach though might get few specs (if tehre is any left as you point out) hot – but we’ll have to wait and see.

          Cheers BB and thanks

          Greg

    • For gold/copper, Mongolia Oyu Tolgoi mine + USD recovery (which may bounce around for a few years yet)?

      For silver, I don’t know, any big projects? Silver becoming a fairly scarce metal, maybe. Plus, useful for SSD chip solder and some solar tech.