The Long View, 11th June 2012

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Having been away for a week, not looking at a price or even the web, I will not delve into analysing the fundamentals today. However, I can see the economic releases and discuss the effect/outcome.

The biggest move I can immediately see is in the USD, their manufacturing fell into negative (not surprising) and their trade balance also underperformed.  Then the non-manufacturing data came good and the beige book showed increased activity. Finally on Friday the NFP came out with a big jump in employment to 175K but rate also increased to 7.6% so this says to me that the number of people looking for work (participation rate) has turned around. Therefore more people came back into the jobs market whilst the economy also employed more too. This healthy end to the week saw a turn-around in the US stock markets and the US dollar halt its slide. The US dollar bounce is due to the concept that with good economic data the US Fed will slow their QE3 spending, thereby decreasing the supply of greenbacks which has the effect of driving up price. Why they want to “front-run” Uncle Ben is beyond me. He has stated unequivocally that QE3 will remain until unemployment is at 6.5% and with a 0.1% point increase I don’t see why you would be buying US$ on the back of that figure.

Whilst in the US, I quickly note that the VIX has continued to head north. I also note the damaging effect of the fund managers chase for yield. I have written about the toxic effect they have on markets as seen in this article http://www.bloomberg.com/news/2013-06-04/cash-outflows-turn-world-s-best-stocks-to-worst-southeast-asia.html

I also wrote about the smoke and mirrors of conspiracy theorists. This article goes far to debunk their theory as they are investiagating the fraud. Whilst it is a crime, we are all trading on the same data… http://www.bloomberg.com/news/2013-06-05/china-export-gains-seen-halved-with-fake-data-crackdown.html

This segues nicely into the Aussie as China released their figures on the weekend which pushed the Aussie briefly under 94¢. I see the figures as a mixed bag from China. A slightly lower CPI (means slower growth) combined with flat data in production, retail sales and new loans. I will say it again, production at 9.2% of the largest producing country in the world is fabulous, heck, its friggin great for any country to have 9.2% growth in production!

Last week saw the RBA correctly make no change to our rates, as our GDP dipped slightly. So as the price of a currency is reflective of its economy so we should be at where we are. I think we are close to fair value. We will sit here until September, between 88 and 98¢. The RBA is playing with fire though, if our economy continues to slide (I don’t see us in a recession) Steven’s has run out of bullets with rates at 2.75%. He should not have moved them so quickly in Nov and certainly shouldn’t have in May.

In the UK last week we also saw a turn-around in their figures with back into positive PMI’s in construction, manufacturing and services. The BOE left rates and didn’t increase the asset purchase facility. This I see as all good and bullish for the pound. The departed King did say he foresaw growth for the British economy and the figures last week certainly supports that view. This sentiment clearly fed through to price action as the cable outperformed all its peers.

Over in Euro-land, the Spanish had a shocking jobs figure compounding an already struggling position with employment in the land of Don Quixote. This sentiment continued throughout the week with poor figures from Germany and others showing weakness across the continent. No change in rates but some strong industrial figures did come out late Friday from Deutschland. The French have turned their production around last night too. Price on the Eurodollar hasn’t exactly reflected the economic woes over there and I believe that is because of the US dollar story.

As I write, the BOJ have released their policy statement and have not expanded their purchases as they see a recovery in Japan data. This has seen a jump in the ¥ and a flow back into the US$ too.

DATA HIGHLIGHTS AHEAD (times are in AEDST) – 630pm UK Manufacturing Production.

AUDUSD –Clearly there is a massive support level at 94cents but it is a huge fall off 1200 pips in 40 odd days since mid-April. It would take a brave person to be buying in front of this trend and sentiment. I would advise against it, but I have just done it on the hourly chart with the 01:00 GMT bar being my bar 2 of a ring low. On the daily chart, there is no signal yet.
Resistance: 9590/9764/9883/1.00
Support: 9400/9140/8850

EURUSD – Whilst fundamentally we shouldn’t be here, price has clearly broken structure, breaking recent highs of 1.3246. The 50ema has been criss-crossing the 200ema which doesn’t give us a clear idea of direction, but I expect a pullback of some sort. Yesterday’s bar was the first LH/LL since the 28th May so little opportunity to get in and no reason to get out if long.
Resistance: 13315/13400/13480
Support: 13176/13042/13000
GBPUSD –With good data out the cable also has not had a reversal bar since the double bottom back in 29th May. A bullish move that would expect a pullback of sorts.
Resistance: 15620/15766/15820
Support: 15489/15417/15267

NZDUSD –Has followed the Aussie down but a big jump in the ATR so has put up a bigger fight.
Resistance: 8000/8050/8125
Support: 7815/7657/7450

USDCAD –Like the yen, this has fallen into the buying area I am looking for. Need to see buyers come in now.
Resistance: 10287/10400/10448/10516
Support: 10184/10100/10000

USDJPY – Fabulous low test off 78.6% fib of 94.97 on Friday that continued into yesterday. Looking to get long above the horizontal level of 100.
Resistance: 100.00/102.53/104.10/105.60
Support: 9684/9497/9250

GOLD – Didn’t quite reach my sell zone as the resistance of 1425 held it down. Still no real reason to own gold so I would be looking for shorting opportunities.
Resistance: 1425/1440/1477/1525
Support: 1320/1248/1100

David Long

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