See the latest Australian dollar analysis here:
The Australian budget wasn’t the reason why the Aussie dollar fell below 0.99 overnight but there was nothing in it that was or is going to support the Aussie. Indeed I’d argue that the hopeful nominal forecasts for a return to 5% GDP growth in a couple of years simply reinforces the notion that Australia’s credibility is going down the drain. Yesterday John Taylor from FX Concepts said that the Aussie dollar is in a bubble and the Budget last night will have simply reinforced to him and to others that the miracle economy down under is naked under its clothes.
The type of sentiment echoed by Taylor was evident in the price action yesterday. The Aussie was well bid all day and I was feeling pretty good about my decision after writing the report to square up my short AUDUSD and go short AUDJPY as the Aussie rallied to and sat in the 0.9970/80 region. Once Europe entered the fray Aussie was bid up to a high of 1.0003 when the sellers charge the bids knocking it back 20 or 30 pips in the blink of an eye. It was great sucker punch by the sellers to wait and wait and then pounce.
Overnight as the US dollar gained strength once again the Aussie came under intense pressure trading down to 0.9872 not far above our target of 0.9857 we had for a while and which we missed out on because of my stupid idea that a rotation into short AUDJPY might work. Anyway that’s what happens when you break your system and try and pre-empt trades. I haven’t lost money as the AUD fall has offset the JPY weakness but I missed out on 70 or 80 pips in the Aussie.
Indeed though both the USDJPY and AUDUSD rates are nearing important junctures in their trends.
As you can see in the weekly chart above the AUD is getting a little oversold sitting at 0.9888 this morning and has support in this zone but equally the Australian Treasury’s Panglossian expectation that nominal GDP will be 5% in a couple of years is simply not credible given their recent inability to forecast the nominal world and so this is going to add weight on the Aussie as I noted above because one thing we have always had is credibility with offshore investors. The Government and Treasury’s forecasting ineptitude over the past few years and the emerging weakness in the economy – or continuing I would say – is going to hurt sentiment toward investing in Australia and thus the AUD.
Of course that is not necessarily a bad economic outcome for Australia, indeed I’ll be cheering, because a bit of Aussie in the low 90’s would be economically welcome but it does reinforce the overall selling pressure on the AUDUSD.
USDJPY rate hit another multi-year high overnight trading up to 102.40 and it sits at 102.31 as I write. It is firmly in the resistance zone on a number of measures now and a break of the 102.70/1.0350 zone would be decisive.
The trend is clearly still up and clearly still strong – when and where the usual consolidation might come is hard to tell given the USD is getting stronger across the board but with all the convergence of resistance one yen or so higher now is a reasonable time for a pause. But it’s a bull market so only the bravest or most active traders might go short.
The USD’s strength was also obvious in the euro and GBP’s falls both of which look to us like they are going to have a round trip back to recent lows. As noted yesterday the initial target for GBP was 1.5179ish and we are just above 1.52 and now expecting a move under 1.51. Euro wise a break of 1.2872 suggests 1.2475.
The dichotomy between the USD moves as a reflection of the changed and improved economic circumstance relative to the rest of the world is interesting with respect to European stocks in particular and US stocks at the margin. Data out of Europe overnight doesn’t support stocks, not even close, with last night’s Industrial Production, Consumer Prices and the ZEW economic sentiment survey speaking of more cuts by the ECB and a still moribund economic future for the EU.
But the rally in the US market lifted European stocks which at the close saw the FTSE 0.82% higher, the DAX was up 0.72%, the CAC rose 0.53% while in Spain and Italy stocks rose 0.20% and 0.84% respectively. In the US some apparnetly bullish talk by a hedge fund manager on CNBC lifted stocks from the get go – yeah I know, seems incredible – with new all-time highs on the Dow which was up 0.82%, the Nasdaq up 0.70% and the S&P 500 up 0.99% to 1,650.
Turning to commodities as we wrote yesterday we think gold is on the way down again after not being able to breach the $1,475/80 region. A break of $1,417 opens up $1385. Crude fell 1% to $94.22, Silver was 1.33% lower and as noted above Dr Copper is down 2.13%.
New Motor Vehicles in Australia and then some big, very big GDP data out of Europe tonight with German, French, Italian, Portugeuse, Greek and Eurowide GDP. In the US the key releases are NY Empire Manufacturing index, Producer Prices and Industrial production.
So we have some meaty releases to sink our teeth into – Good trading.
Twitter: Greg McKenna