David Long

The Long View, 30th may 2013

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As indicated yesterday the VIX is creeping up. This is a sign of increased concern of a fall in prices of stocks. Its only at 14.8 but historically 14 is the level that there is an issue. I think that level could be 18 now given the moves of 2008/2009. Still, it’s a trend worth watching as stocks got hounded last night. No particular headline or release caused it, just a market driven move ie: healthy.

VIX 30.5.13

One headline I did appreciate is from a wise old egg and former Fed Chairman Paul Volker, 79-87, can anyone remember pre-Greenspan years? Greenspan and his progeny Bernanke began the era’s of bubbles from the dot com to housing and subprime to the current one, yet to be recognised or named (anyone?).

Anyway, in a speech to the Economic Club of New York Volker has come out and basically said Uncle Ben is pushing it uphill with a twig and dangerously close to failure.

“Asked to do too much, for instance to accommodate misguided fiscal policies, to deal with structural imbalances, to square continuously the hypothetical circles of stability, growth and full employment, then it will inevitably fall short,” Volcker said. Those efforts cause it to lose “sight of its basic responsibility for price stability, a matter that is within the range of its influence.”  

Better yet Volker highlighted the issue I raised last year, inflation.

“The implicit assumption behind that siren call must be that the inflation rate can be manipulated to reach economic objectives,” according to Volcker. “Up today, maybe a little more tomorrow and then pulled back on command. Good luck in that. All experience demonstrates that inflation, when fairly and deliberately started, is hard to control and reverse.”

That people is the noise of the splash as the shell drops across the bow, we are yet to hear the actual shot fired of this, the first warning. Printing cash willy-nilly to prop up a business and lifestyle that are both unsustainable will have repercussions with inflation and bond yields rising. The bond market has been going crazy lately, both in the US and Japan, has become a key talking point by economists. As yields rise, the debt these governments carry become very expensive to maintain. I am not a fan of doom and gloom but I am a realist, this will come back and bite Uncle Ben and his groupies; King, Draghi, Kuroda.

DATA HIGHLIGHTS AHEAD (times are in AEDST) – 1130am AU building approvals and private CAPEX. 1030pm US GDP. 12am US Pending home sales.

AUDUSD –It did push through the floor but as I said, the sellers don’t have the strength to hold it under, nice low test and a higher high today will be the sign that a bounce is imminent. Buying is high risk but I expect a move back to 99¢ before sellers come back into the Aussie. We have been above $1 initially because of China and for the last 2 years because of a safe haven and high yielding bonds. We still have these in Chinese growth and our bonds still high yielding. However, after 6 years of Labor, 2 years of negative media and a Central bank hell bent on destroying sentiment the Aussie is succumbing, both in the economy and dollar. Well done!
Resistance: 9850/9930/1.00
Support: 9620/9582/9400

EURUSD – It’s not an appearance, it actually is in a range, let’s call it 12940-12840 with some noise outside that. Really it has been oscillating 200pips either side of €1.30 since mid Feb. I see nothing here on the daily timeframe.
Resistance: 13000/13040/13112
Support: 12880/12750/12655/12500

GBPUSD –Couldn’t break the 1.50 level, yet it is still in a downtrend, yesterday’s bar is just engulfing, not trend breaker.
Resistance: 15200/15410/15606
Support: 15080/15000/14800

NZDUSD –Looks very messy to me, engulfing bar inside a range.
Resistance: 8211/8360/8475
Support: 8050/7913/7815

USDCAD –Pulled back off the trend line at 1.0415, am looking for a phase 2 back to the 1.250 area for an opportunity to get long.
Resistance: 1.0400/10448/10516
Support: 10287/10184/10100

USDJPY – A lot of noise out of Japan as Kuroda finds his feet at the BOJ and with handling the media, not to mention the effects of his actions. The Jap stock market, the Nikkei, has had some crazy moves since his first meeting in April, so have the bond yields. So much that he has had to come out and say they will calm down in time and that the yen is close to competitive levels. So, we get an engulfing bar and back towards my buying zone.
Resistance: 102.53/104.10/105.60
Support: 100.00/98.52/9670

GOLD –The puddy tat is starting to look like Pinocchio with an inside bar. Which way will she jump?
Resistance: 1425/1440/1477/1525
Support: 1320/1248/1100

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