A further deterioration in risk sentiment during the European and then early-US sessions saw AUD/USD lose its already tenuous grip on the psychological 0.70 level in early New York trade, the pair’s first foray below 0.70 since 9th February 2016. Back then, AUD was in the process of recovering from a low of 0.6828 in turn the lowest since early 2009. The low Overnight has been 0.6800 (0.6955 now). That the AUD has not come back up with a revival in US stocks – and related fall in the VIX to close at 23.25 from above 28 earlier in the US session owes something to weakness in base metals prices. Copper and aluminium are currently showing losses of 2.2% and 2.7% respectively. Iron ore futures are actually up by about 1%, but on a day-to-day basis iron ore is much less influential on AUD than base metals or oil. After the US Markets closed Apple came out and lowered its Q1 guideline sending the Futures Market sharply lower. This is turn saw a massive move in the Japanese Yen which traded to an overnight low of 104.90 before recovering to sit at 107.70 as I go to press.
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The intra-day revival in US stocks with all Indices closing modestly higher is being attributed to a smart recovery in oil prices. Both benchmarks are currently showing gains of more than $1, having been sharply lower earlier in the day, a move attributed to a report that Saudi Arabia has been lowering its crude oil exports. However this morning on the back of Apple lowering their guidance European Markets are opening 1% lower while US Futures Markets are showing losses of 1.5%/2.0% across the board.
The Euro got hit hard yesterday as traders fled into the US Dollar on the first trading session of the new year with the market making an overnight low of 1.1310 which was well of yesterday morning’s high of 1.1480. The ‘’Flash Crash’’ in the Japanese Yen has been mostly recovered as we wait for the US Markets to recover.
Incidentally, my fair value estimate for AUD is currently around 0.69, unchanged from this time yesterday, with a lower VIX and higher oil broadly offsetting the influence of lower aluminium prices.
AUD weakness is far from unique in the G10 FX world where, unlike much of pre-Xmas and Xmas-New Year period, the USD has exhibited stronger safe haven characteristics, defying the pull from a further decline in longer dated US treasury yields (10s are down 2bps to as new post-February 2018 low of 2.65%, though 2s are 2bps higher at 2.51%). Thus the DXY index is 0.8% higher at 96.8, with gains chalked up against all bar JPY and CAD, the latter evidently drawing some support from the rise in oil prices.
USD/JPY has made a new post-may 2018 low of 104.90 overnight (107.70 now) and is now down over 8% since the beginning of December.
In terms of Economic Data:
UK manufacturing PMI 54.2 up from 53.1 and the 52.5, though ‘’Brexit preparations’’ were cited behind the rise in manufacturing activity
Final Euro-Zone Manufacturing PMI 51.4 unchanged from the preliminary and as expected, though the first/only release of Spain’s PMI showed a fall to 51.1 against 52.4 expected and 52.6 last
Ahead of the more important ISM Manufacturing reading this afternoon, the Markit US Manufacturing PMI was little changed at 53.8 (from 53.9 last and expected).
This morning on the Economic Front we have Euro-Zone Money Supply at 9.00 am and this is followed at 9.30 am by UK PMI. At 12.00 pm we have US MBA Mortgage Applications, followed by the ADP Employment Change at 1.15 pm. This data will be closely watched ahead of tomorrow’s Non-Farm Payrolls. Next at 1.30 pm we have the US Weekly Jobless Claims and the ISM New York at 2.45 pm. Finally at 3.00 pm we have Construction Output and ISM Manufacturing.
March S&P 500
As expected the S&P recovered all of yesterday morning’s 60 Handle sell-off to close the ‘’Open Gap’’ left from last Monday. Just as I posted the S&P was trading at my 2454 buy level before rallying to my 2464 T/P level and I am still flat. Having closed at 2511 last night the S&P is currently trading at 2475 on the back of the Apple news with a another potential and large ‘’Open Gap’’ to be filled when the US Markets open. With the VIX closing at 23.25 which is well off last week’s Double Top at 38 I still expect the US Markets to be a buy on dips as long as we do not break and close below 2445. Today I will be a buyer on any dip lower to 2452/2468 with a wider 2439 stop. I no longer want to be a seller at this time as I now expect the S&P to eventually challenge the key 2600/2625 major resistance area over the coming weeks.
My Euro plan did not work well with the market trading lower to my average 1.1400 buy level before stopping me out of this position after the US Markets opened at 1.1345 and I am still flat. The Euro has strong resistance from 1.1400/1.1440 and today I will be a small seller on any further rally to this area with a 1.1470 tight stop. My only interest in buying the Euro is from 1.1240/1.1280 with a 1.1195 stop.
March Dollar Index
As I was already long the Euro I waited to sell the Dollar which I did at the top of yesterday’s range at a price of 96.30. I am still short and today I will leave my stop unchanged at 96.65. I will now raise my T/P level on this position to 96.05.
The DAX just missed my 10360 buy level with a 10390 low print before rallying over 250 points and I am still flat. Today I will now raise my buy level to 10360/10420 with a higher 10290 stop. I still do not want to be short the DAX at this time.
The FTSE made its low price just as I posted yesterday morning helped by the renewed sell-off in Sterling with Sterling close to last month’s new lows. Today I will now raise my buy level to 6520/6570 with a 6480 stop.
Dow Rolling Contract
The Dow also just missed my 22800 buy level before rallying over 600 points after I posted and I am still flat. This morning the Dow is trading 350 points lower than last night’s close on the Apple news. Given how oversold the Dow is trading plus the fact that the 50 Day Moving Average is well above current prices at 24614 I am still a buyer on dips of this market. Today I will now move my buy level higher to 22730/22920 with a wider 22560 stop.
I am still flat the NASDAQ and today I will now move my buy level slightly higher to 6120/6170 with a 6075 tight stop.
The BUND traded higher to my 164.67 sell level shortly after I posted yesterday morning before trading sideways for most of the day. This morning the BUND opened higher and I added to this position at a price of 164.97 for a now average short position of 164.82. The Bund is now severely overbought and I will leave my stop unchanged at 165.25. I will now raise my T/P level on this short position to 164.55.
Gold Rolling Contract
Gold continues to outperform all asset classes after it nice rally off last month’s 1212 low print. I am still flat and today I will now braise my buy level to 1265/1275 with a 1257 tight stop.
Silver Rolling Contract
I am still flat Silver and today I will now raise my buy level to 15.05/15.45 with a higher 14.70 stop.