Macro Morning: Tapered enthusiasm

morning12111

Interesting night overnight with more Taper talk in the US, a less dovish than expected Bank of England Governor Mark Carney and a much stronger yen than anyone could really imagine given the challenges of the Japanese economy.

In the end it was taper talk which hit the US stock markets which were down a little as no catalysts emerged to offset the concerns Fed by Charles Evans the previous day and Cleveland Fed boss Sandra Pianalto who said there had been “clearer signs of a more sustained recovery” in the US jobs market and that “In light of this progress, and if the labor market remains on the stronger path that it has followed since last fall, then I would be prepared to scale back the monthly pace of asset purchases,”. 

At the close a little with the Dow  was down 48 pts or 0.31%, the Nasdaq was 0.32% lower and the S&P 500 was down 6 pts for a loss of 0.38% and a close at 1,691. Hardly worrying really as much as the press is making a big deal of the 3 day drift – but that is all it is, at the moment.

In the UK the less dovish Carney who explicitly put the BoE on a path of low rates until unemployment drops from the current 7.8% to 7% but cautioned, kind of anyway, about the inflation rate which he said also needed to drop about half a percent disappointed markets and the FTSE fell 1.4% and the Pound fairly roared.

Looking at GBPUSD we can see the strong rally in the past couple of days rising strongly from the 1.5120 region back to a high overnight of 1.5530 before pulling back a little into the 1.5480 high region this morning. It is slightly over-cooked on the short term charts  and if I look at the dailies I see some serious overhead resistance in the mid 1.55 region from the 200 day moving average, old uptrend line that it has broken down and then the trend channel top which converges with the other line you can see on the chart below at 1.5882 today.

gbp, gbpusd, sterling (gbpusd), price quote 1 hour

The Aussie and USDJPY are going to be the focus in Asia today but a lazy GBP short with a big old stop might prove a good strategy for the next 48 hours.

Turning to the Aussie and it is unemployment day which is the most widely watched economic release each month. Readers know I prefer the NAB Business survey as my one touch reading on the economy but for better or worse the market likes to watch the employment data.

Today will be no exception given that the market has gotten the notion that the RBA is now on hold and as such bid the Aussie up. Last month we saw a rise of 10,300 made up of a small full time fall of 4400 and a rise in part time of around 14, 700. This month the market is looking for a rise in employment of 6,200.

Employment is not a number I forecast nor is it a number that I usually trade in front of because it is such a volatile beast. Indeed I stopped trading it back in about 1990 or 1991 soon after I started trading when I learnt the size of the standard deviation of the number relative to the actual monthly release and expectations of the punditry.

Today will be no different but there will likely be opportunities to profit after the number has been released.

aud, audusd, australian dollar, australian dollar price quote, audusd 1 hour

You can see in the chart above the sell off back to support in the 0.8930 region last night and the rally to the high of 0.9024. I remain of the view that unless or until the AUDUSD trades up and through 0.9035 that it is still in the lower box. A break is a chance for a decisive move higher while a weak employment number today would see AUD run back to support at 0.8930 and if that breaks 0.8840/60.

Data

FX markets are attuned not only to the Australian employment data but also the Bank of Japan’s monetary policy statement and BoJ Governor Kuroda’s statement afterwards. But before that we get Japanese current account and investment data and a Bank of Korea interest rate decision. New loans data in China is likely to be closely watched and German Trade data when Europe enters the fray. As ever Thursday is initial jobless claims day.

Good Hunting

Greg

Twitter: Greg McKenna or you can copy my trading at FXCopy GregMcKenna