It was all about FX overnight with the US dollar stronger knocking the yen through 100, the Aussie below its range low and hitting the euro back toward the bottom of the range. Dr Copper was under a little pressure and gold and Nymex crude were both lower also.
The absolute catalyst is hard to know but it was clear that this was a big move, probably a portfolio shift, that fed on itself because everything started to move at the same time as even the most casual perusal of the charts will show.
Could it have been the improvement in jobless claims which at 323,000 was another 4 year low? Possibly, but the timing seems a bit wrong. Whatever the catalyst the impact has been important for both the Aussie and the yen because it has kicked them out of their recent ranges.
Yesterday’s employment data continued the recent volatility in such a fashion as to lead the NAB to say in their summary to just ignore it. But FX traders certainly couldn’t ignore it with the AUD trading from 1.0165 up to 1.0253. But something strange then happened – for the first time in a very long while sell orders entered the market and sat on the Aussie. When I noticed this I tweeted that I was going to go short and did but took the position back way too early given the overnight low was 1.0044. My lifestyle short is still in place and we’ll let that one run and see where this emerging AUD trend toward weakness wants to go:
As you can see in the chart above the Aussie has broken the range and we are now looking for a test of the trend line and 200 week moving average which comes in around 0.9850.
The worm has turned for the Aussie and whether it is us and our readers or George Soros and his disciples it is clear that sentiment has changed from the Panglossian outlook for Australia and the Aussie dollar that has been in place for a couple of years now. After a long period of range trading the path of least resistance seems to be down.
The other big move was USDJPY with a break of 100 has been coming for a while and while we always trade the range/box until it breaks it is the break up and through 100, which is decisive, would have dragged longs into the market. Positioning is such in yen shorts that the past few weeks has given the yen bears fresh space to take USDJPY higher. It’s true I didn’t see this one coming, certainly not in the timing overnight, but a break is a break and traders will be buying now.
Based on the usual Fibonacci projection from the break of the range a target of 1.0250/1.0350 seems reasonable.
Turning to the euro and it was the US dollar’s strength that has driven it back down to the bottom of the 1.30/32 range with an overnight low of 1.3009 after a high of 1.3177. The range remains the play and as you can see in the chart below the trend line remains intact for the moment. But a break of both the range, the trend line, which comes in at 1.2992, and the 200 day moving average at 1.2982 would be decisive.
It is an interesting outlook and really does hinge on the outlook for the USD and particularly USDJPY. So we will take a lead from those moves. In the UK the decision by the BoE to keep policy unchanged had little impact on the market but GBP reversed lower with the US dollar’s move. I was wrong for a day but it feels like GBPUSD is heading lower.
On stock markets things were looking good with Jobless claims printing another 4 year low of 323,000 until just after lunch which is when USDJPY broke higher and the Aussie and Euro got hammered. Equally financial shares came under pressure around this time and Apple also came under pressure.
It wasn’t a huge sell off by any stretch of the imagination with the S&P only down 0.37% of 6 points. The Dow was 0.15% lower and the Nasdaq fell 0.13%. In Europe the FTSE and DAX were marginally higher up 0.14% and 0.16% respectively but in France, Italy and Spain stocks were down 0.69%, 0.95% and 0.28% respectively.
Looking at commodities we see the US dollar’s move had resonance here as well with Nymex crude off 0.68% to $95.96 Bbl. Gold and silver were also a bit lower trading at $1455 and $23.60 respectively. Dr Copper was off 1.16% but corn and wheat were both up sharply with near 3% moves but soybeans lagged only rising 0.8%.
Data
The RBA’s quarterly Statement on Monetary Policy is released this morning and will be interesting reading to see what was behind the move to lower rates this week and what might be in prospect. This might introduce a bit of volatility that would otherwise be absent on what should be a fairly quiet day before German trade data tonight.
Twitter: Greg McKenna