Good morning and hello to you all, I trust you all survived the festive season with much frivolity and family time. Supagirl and I had a fabulous break in Australia spending our time with family on the New South Wales Central Coast and on the farm outside of Tamworth. Good relaxation was had and we are ready to tackle 2014 with gusto.
I am not a fan of cricket but the Ashes win was historical, as much for the 5 nil whitewash as it was for the teams’ turnaround, from zero to hero. Aren’t the Australian media and public fickle! Tennis is more my summer thing, so I enjoyed the ol’ dog Hewitt get a tournament win, especially against the legendary Federer.
There has been little in the way of headlines the last few weeks, as you would expect at this time of year. I have had some minor trades on that were all closed out last Friday, so this kept me with one eye on the markets during the break.
The general direction of the market recently has been steady and rather predictable, we hope this will continue however when central bankers are involved things do get muddled. Later this week we have the ECB and BOE both coming out with their monetary policy stance. Then the US Non-Farm payrolls on Friday night might give us some indication of the direction of the US.
How I see this panning out is that the US and China will continue to grow and expand and the battle to be number one will intensify. The Chinese have a long way to go to catch up though, with a Nominal GDP of 8 trillion compared to the USA of 16 trillion (USD from IMF 2012). The “pegged” Renminbi will become a sticking point and crucially so as AGSP3 (Janet Yellen, who starts work in Feb) reduces the US$75B/month spending spree of the Fed’s quantitative easing. This “tapering” of QE3 will give strength to the Greenback which will in turn hurt the terms of trade with China. A delicate balance the Fed must walk.
Over in the old world the Brits are growing at healthy rate and Carney too will look to reduce their “Asset Purchase Program”, I expect the pound to remain strong against most crosses apart from the greenback; that will be harder to read. The Europeans, as a region are the largest GDP, at 16.6T, but are also the weak link in the global economic picture. They are starting to show signs of recovery, and certainly Germany is holding up well, but there is a lot of rot still present in Spain, Greece, Portugal and Italy.
Up in Japan they have a few issues going on and not least economically. They have two wolves at the door in China and Nth Korea, the former looking to expand and assert itself as the regional super power and the latter just a constant pain the peaceful butt. Economically the Japanese are the worst of the top 5 (US, China, Euro, UK, Jap) and will continue to weaken the yen with all eyes shut.
So, it shall be an interesting year and many opportunities to be had but as always we must trade what we see, not what we believe. Always remember that belief is the death of intelligence.
DATA HIGHLIGHTS TODAY – UK Services PMI. US Non-manufacturing PMI.
AUDUSD – Seems to have found a floor here around 89¢, being the high in 1989 and bouncing off it September too. Price is looking to retrace back to its 50ema as more selling pressure builds. I do expect the Aussie to strengthen but that is later in the year as our economy slowly turns the corner and the government repairs the damage of the previous group of muppets. In the mid-term I expect it may well test 80cents as the greenback strengthens.
EURUSD – Tumbled last week as traders viewed its rally as not worthy and I have to agree with that. The weakest link should not be rewarded with a high currency. Here I expect it to get a bit messy, frothing, but would prefer to be looking for shorts back to 1.30.
GBPUSD – Would like to be long Pound but not necessarily the Cable. Expect a test of the 50ema and support level of 1.63 this week.
NZDUSD – Has been messy since mid-Oct and I do not see that changing anytime soon. Effectively will be range bound b/w 81 and 85 cents, should be lower though, towards 77¢.
USDCAD – Has chopped about in December as the Greenback and Loonie both gain strength. The US will win though so be looking for long opportunities.
USDJPY – As mentioned above, the US dollar is strengthening and the ¥ is weakening. Central Bank and government policies from both sides indicate that this trend will continue, so like the Loonie, look to buy any dips.
GOLD – Retested support and recent lows of 1180 last week, and is now back on its 50ema. It is getting harder and harder to read this commodity but I would be looking to short it as the US come out of the wilderness and tame the inflation fears.