Hey guys, I am back today, been a bit busy as supagirl returned to local shores last week and the undertakers took mini-black betty away. Yet to decide if the two wheeled bandit will be replaced.
However, I have been keeping an eye on the markets and looking for trades. It has been tough few weeks in trade land with trends hard to hold onto for too long. One trend that is established is, “risk-on”, as investors move out of greenbacks and yen and chasing yields into the equity markets. China pledged yesterday to expand economic reform, the biggest move in almost 20 years. Despite this, the industrial metals fell overnight although the Aussie and Loonie did benefit from the news. I do see continued US$ weakness as Janet Yellen (who from now on will be known as AGSP3, or Alan Greenspan Service Pack 3, whereas Ben was AGSP2) keeps her slipper ensconced foot firmly pressed down on the QE3 gas pedal.
Today we see the US stocks hit record levels, again, but also lovely round numbers, with the S&P500 touching 1800 before falling towards the close. Commodities continue to slide heavily with oil off another percentage point, gold down 1.3% and copper -0.70%, even soft commodities slid. Bonds interestingly have also slipped overnight. I suspect that coming into the Christmas break that people will look to lock in profits from what can only be described as a fake yet stellar year in stocks. The S&P500 has rallied from 1426 at start of year to (currently) 1790, a 25% return. So, if it was me, I would pull out of my position and head to safe havens (Swiss currency, US and Japanese government bonds, even Aussie bonds) to enjoy the break. That or at least hedge it and since VIX is still under 14 I do not see the hedging on the horizon yet. So, keep an eye on this space.
DATA HIGHLIGHTS TODAY – RBA Minutes. German economic sentiment.
AUDUSD – Having broken recent lows but held onto 93 we complete a mini cycle under the 50ema with a high test bar testing both the 50ema and horizontal level of 9390. We have the minutes out today however they will be of little value to us. Rarely is there any insight from them or any difference to the statement from 2 weeks ago. Fundamentally it is hard to read the Aussie but I would still prefer to be a buyer. Also be a buyer due to US$ weakness. Then technically I would be a seller of the Aussie on the weekly and daily charts. However, the 4hr or 1hr indicate bullishness. This kind of contradiction screams stay away and so I will until all aligns. There is some interest in getting long on the AUDNZD cross though, if an opportunity presents itself.
EURUSD – Broken above what was growing to be a large resistance level and in the shorter timeframes has come back to test them. The daily chart now looks like a test bar but if it can stay above 13488 I see a rotation higher from here. Fundamentally, yes they do have issues, but I see them overcoming this and attracting a lot of flow, which ironically will hurt them by keeping the Eurodollar high. On a side note, the Swiss are looking to keep their peg in place against the euro even though the risk of the euro failing abates. http://www.bloomberg.com/news/2013-11-18/snb-seen-keeping-cap-on-franc-until-2015-bloomberg-poll.html
GBPUSD – The Cable too has held up well as the nascent recovery from the awful start to 2013 grows. Fundamentally I see them continuing to strengthen and they are even trying to lure people into property as a safe haven. Technically it is stuck and range bound under 1.63 and whilst the daily is showing bullish and the 4hr too that resistance will be tough to break.
NZDUSD – See no cyclicity or trend at the moment in this. Range bound between 82 and 85 cents.
USDCAD – Another currency that is caught in sideways action after testing support overnight. Is being pulled around by weakening greenbacks, weakening oil and commodities, strong China and falling inflation. Fundamentally prefer to be short a Loonie or two so would look for opportunities in against any currency cross. http://www.bloomberg.com/news/2013-11-18/canada-dollar-rises-with-stocks-as-china-adds-economic-freedoms.html
USDJPY – As I have said, I want a cycle above the 100 mark. A clear break above and retest. Then I will get busy buying it too. Fundamentally this is a good trade, being short ¥ as RISK ON continues, not to mention that Kuroda (let’s call him AGSP2.2) in US dollar terms is printing more per month than Uncle Ben. Whilst for me there is no trade on the $¥, I have been busy in other yen crosses to some success.
GOLD – Took a $15 hit overnight but is still hanging onto support for grim death. Knock it under 1250 and I do not think 1180 would hold the sell-off. Fundamentally I would prefer to be long, but technically it says to stay away for now.
David Long/ Proprietary Trading Manager