With US Fed Chairman Ben Bernanke speaking tomorrow morning it may be wise not to step into a trade exposed to US dollars. With the US dollar one directional since the last FOMC meeting June 19th (see chart below) the release of the minutes and he’s following speech will create volatility. The speech is titled “A Century of US Central Banking: Goals, Frameworks, and Accountability” and will be given at the National Bureau of Economic Research Conference “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future,” in Cambridge. Audience questions are expected and it is in the question time that things could get interesting. I am pretty certain he will not want the trend in US dollar to continue as it is increasing the strain on the US recovery and therefore delay the end of QE (quantitative easing). This is the balance he will try to address I believe, an attempt to push the US$ back down. A tricky position to be in for sure but one of his own making.
Markets outside US had a bit of fun with stocks up across the board and most commodities too, the pound got roasted for posting a negative manufacturing production number. Whilst the UK does have a strong manufacturing base in their GDP it is not their largest component, with finance and services out weighing it. Therefore I do see this as overdone.
DATA HIGHLIGHTS AHEAD (times are in AEST) – 950am JAP Monetary Policy Minutes. 1030am AU WBC Consumer Sentiment. ? Chinese Trade Balance. 3am US Bond Auction. 4am FOMC Minutes. 6am BERNANKE SPEAKS.
AUDUSD –Fib from 2008 lows to 2011 highs gives a 38.2% retracement price of 0.9138 and price has been glued to it for over a week now. Interestingly the 61.8% fib of this move is 0.7943, whilst a 50% retracement from 2001 lows to 2011 highs is 0.7927, 16 pips apart, a confluence of Fibonacci’s. This is looking to be a good mid to long term target for the Aussie. I do see the Aussie to be between 88¢ and 95¢ in short term. I seriously hope he doesn’t, but if Rudd gets in I would suggest that the 79 will come sooner rather than later. Right now whilst we did post a HH/HL and closed above the 9138 level I am not seeing a major shift in trend or sentiment just yet and don’t want to commit to a trade with Jobs data tomorrow not long after Bernanke.
EURUSD –Tested support of 12750 and has held, for the time being but sentiment is truly bearish, or should I say US$ is very bullish and Europeans are on the sidelines, so Eurodollar slides. The 50ema has been criss-crossing the 200 for almost 4 months now. Flat ema’s such as these it indicates a range bound market, albeit in this case a 400 odd pip range, 12800 to 13200-ish. Will leave a directional call until after Ben, will it break the range or trend on down to 1.21…
GBPUSD –Ranges all over the place with the Cable. £1.48 is a key level and it bounces off this price often in the last 20 years, but not as often as it bounces off 1.40. Since 1985 the cable has spent over 60% of its time in between 1.40 and 1.70 and had several tighter ranges inside that. I personally am looking to long this (I have a small position in it now but will add to it) if buyers come in this week. Divergence in RSI is assisting me in this decision.
NZDUSD – Has managed to inch high enough to tag the 20ema but really hasn’t moved too far from the range of 77-78¢. Still bored.
USDCAD –Has come back to test the support level of 10524 after rejecting Fib 1.618 extension at 10597. Posted a LH/LL but the sentiment is still up with oil inventories showing huge deposits being held in US and Europe.
USDJPY – A little SWING HIGH with RSI divergence could see some sellers come into the yen and retest parity at 100.00. I am still long and have moved stop to protection under the LH/LL of yesterday’s bar. Am still of the belief it will test long term fib, 61.8, at 105.60.
GOLD – Still no reason to own gold but could see a move back towards 1300 in recent price action.
David Long/ Proprietary Trading Manager