Macro Morning: Gold whacked

morning121

Much happened Friday night but clearly the weaker than expected retail sales in the US, which fell 0.4% raw and -0.1% ex autos and gas, hurt economic sentiment and was confirmed by the sharp and unexpected fall in the Michigan Consumer sentiment number which printed 72.3 against 78.5 consensus and 78.6 last. The US recovery was never going to be linear but this recent run of data has been a bit weaker than many expected and the downside surprises helped the yen and even buoyed the euro and the pound. On commodity markets the fall in crude and copper seem to reinforce the notion that Friday was about perceptions of growth and down grading of them.

Of course markets are wildly volatile and emotional at the moment – more so than usual we might say – and today we get the release of the Chinese GDP data for last quarter with the market is looking for 8% YoY and 1.9% QoQ but we are guesstimating on stronger numbers even with the net export number last week.

If the Chinese data is strong expect the Aussie and stock markets to rally. However if it is weak well then it might just start the nervousness again.

Even with the weak data US stocks held in relatively well after the lead from Europe which was weak. The Dow ended flat, the Nasdaq finished down 0.16% and the S&P 500 fell 0.27% to 1589. It did manage to hold above the uptrend line however into week’s end. Europe was a slightly different story however with the FTSE down 0.5%, the DAX falling 1.61%, the CAC 1.24% and Milan and Madrid down 1.50% and 1.46% respectively

Turning to the big movers, gold is stealing most of the headlines with its fall of more then  4% or $63. I have been bearish the yellow metal for some time and the failure to hit let alone break through the $1619 when the Cyprus mess was in the headlines spoke volumes. My view since late last year was always a technical one and I have no fundamental idea why gold was sold so heavily on Friday night and the interesting thing about most of the commentary we have read is it is about the drop not the cause of the drop.

On FX markets, the big news is the yen, the punch up between the US Treasury and the BoJ and the huge fall in USDJPY over the weekend. On Friday the yen was looking a little stronger and the yen crosses were looking wobby. I got short USDJPY on Friday on this basis and it closed the week at 98.34 down about 150 points from the high in the morning.

I reckon USDJPY was simply a convergence of a market which is still very short and news from the US Treasury that they have their eye on the Japanese. I am paraphrasing but the UST reiterated that the Japanese had signed off on the last G7 communique, where you will remember that they all agreed as long as policy was aimed domestically the external and currency impact was simply what it was, and reminded the Japanese that their monetary policy must be aimed at getting the Japanese economy going not just at weakening the yen.

So the Japanese card has been marked and 100 is now a huge level – we have probably seen an interim top for now.

jpy, usdjpy, yen, dollar yen, dollar yen quote, daily chart

When we look at our technicals I have to say USDJPY looks like it is going to head back to test the top of the box it broke out of which roughly also corresponds with the 38.2% retracement level of the move from the bottom of the box to the recent high. Thus my target is 96.30/65 when we will get a better view of where USDJPY is going.

Now remember that this is a simply ordinary run of the mill retracement which we see in markets over and over again and the pullback in yen crosses is likely to be replicated across the board.

The euro is doing its best to try and push higher but unless and until it can take out last week’s highs at 1.3135/40 then it is trapped. GBP has been climbing off the floor since March but spec positions are at a 6 month high in terms of bets against the pound. This is most curious and speaks of underlying distrust in a fundamental sense for the GBP rally. From my point of view GBPUSD should and will eventually trade down to the 1.42ish level but for now the short term risks might be skewed the other way.

The Aussie traded underneath 1.05 as I thought it might on Friday. I squared my long from earlier in the week and went short  AUDUSD in the 40’s taking profit at 94 on Friday night. Aussie has held up well but it does look like lower levels might be beckoning. Watch the 1.0480/85 region from where it bounced last week as a key indicator of direction.

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The 4 hour charts suggest a move back into the 1.0450/60 region with 66 the 50% fibo of the bounce from 1.0343 in early April – below that it is 1.0436.

On commodity markets gold fell heavily but silver also tanked pushing below the low from May last year and opening a potential move to $22.47 oz. Crude tanked as well dropping 2.37% to $90.66 Bbl and Dr copper also fell more than 2%.

Data

Earnings season continues so this will be important and I note I read an article on Market Watch which said the analysts have been more bullish than the strategists  during this market run and thus more successful. It seems the ground up rather than top down stuff is working a little better at the moment so earnings may continue to be okay and support the market’s levitation.

Kuroda is talking again today and then we have Home Sales in Australia before Chinese GDP data.

Tonight is quiet in Europe and then in the US the highlights are TIC flows, NAHB index and Empire State Manufacturing

Twitter: Greg McKenna

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Comments

  1. look like my forecast on the 2013 tread, of 1,400 for gold as of 12/31/13 could be too optimistic.

    fortunately some smart cookies bough silver instead 😉

    I m glad I sold my gold early last year and piled in property. Who called me a fool ?

  2. If gold is devaluing now, how much will it devalue when the Fed stops printing 80milUSD a month?

  3. Is this because (1) people suddenly started thinking that debt deflation is more likely than hyperinflation, or (2) the great rotation?