Stocks took beating overnight with the S&P down 1%, the Footsie (UK) closed also down 0.94% but was down a lot worst at almost 2% negative mid-session. Euro ended down 1.3% too. Not surprisingly in this “risk-off” (risk adverse) climate the VIX index rallied 10.5%. What was surprising is the fall in commodities, the CRB down 0.5% with energy (oil) the biggest loser, although softs and industrial metals also fell. Grains held up ok though. The US dollar also fell in this environment as cash flooded away from US equities.
So where is the flow of money going if they are pulling out of high yielding, high risk assets? Well the yen, euro and cable all gained 100pips against the greenback but the biggest winner was bonds, government bonds. I have spoken and written about the large moves in the bonds over the last few weeks, it seems that overnight there was some profit taking in this area that sparked some further selling across the trans-lux board.
Just also looked at the Baltic Dry Index (the measure of demand for shipping raw materials like coal, grain and iron ore etc, versus the supply of bulk cargo carriers) was dipping in May it rebounded in June and was up 1.2% overnight. This along with the increase in US inventories suggests to me that confidence in global growth is strong, strong enough for people to be spending and placing orders. A good sign.
DATA HIGHLIGHTS AHEAD (times are in AEDST) – 630pm UK Unemployment. 4am US Fed Budget Balance. 7am NZ Interest Rates.
AUDUSD –I think the Aussie has found a temporary bottom. Don’t get me wrong, I think we will see 88 cents before the election but I would not be surprised if we hit 97 or 98 cents first. A higher high/higher low in today’s bar would see a buy signal tomorrow, although tomorrow there is aussie unemployment data.
EURUSD –With the US dollar weakness the euro continues its run. Is pushing right against resistance at the moment and if it can get through 1.3360 area 1.35 is feasible in this move.
GBPUSD –No pullback on the cable with risk off Yankees about, so above resistance we go, don’t buy into these moves on day timeframe, look to trade them on short time frames as you won’t get your risk reward on the daily.
NZDUSD –Like the Aussie it posted a big low test bar and is looking to set up a swing low reversal off a support level (7815). A phase 2 trade is likely but the kiwis have their monetary policy and interest statements tomorrow morning on the open.
USDCAD –A confused market with the bellwether for the Loonie, being oil, coming off along with the US dollar. The market was looking strong until the $ fell and it now is a high test bar, albeit a HH/HL. Not enough for me to get long just yet.
USDJPY – Well the BOJ ruined the party yesterday with a powering ¥, it reversed all yen calls. With it hanging in no-man’s land I will reserve judgment on it for today.
GOLD – A low test bar of sorts but it is a LH/LL as hit head-butts minor resistance of 1380.
David Long/ Proprietary Trading Manager