The US CPI came in much stronger than expected which leads to the Fed reducing monetary stimulus. Remember that a stronger economy has faster inflation, to which a central bank would control with higher interest rates. So to slow the US economy down the Fed will have to stop the QE3 quicker than expected and possibly raise rates. This slowdown of QE3 (and/or a raising of interest rates) generally means stocks are down and dollar is up. So the greenback outperformed all bar the pound overnight. Gold got hit the most, down 2%. Oil off smalls, the bid remained in oil as headlines flashed that Ukrainian civil war picks up pace and Russian airborne soldiers seen in the skies. Stocks were up smalls in the US but down in Europe, due to Ukraine.
A busy night ahead for data, some key areas I am watching, namely for the Pound and Loonie.
DATA HIGHLIGHTS TODAY – Chinese GDP. Japan Kuroda talks. UK Unemployment. US Building permits. CAD BOC Monetary Policy Report & Interest rate Statement. US Aunty Janet talks.
AUDUSD – The RBA are staying on the fence for some time it seems so no move in rates on the horizon and so the Aussies run is over for now. The carry trade that has bolstered it in recent weeks will also be uninviting as the US scale back QE3. There was no safe entry to short the Aussie and now the trend is confirmed with a LHLL seller bar, to participate we must look at smaller runs on the smaller timeframes.
EURUSD – Lack lustre figures from Europe and a bit of flight to safety as funds move over the channel to London on Ukraine news gives us a LHLL. Pulling back to support of the ema, to get short this I need to see selling under the ema, a full cycle.
GBPUSD – Massive test bar born from news (CPI steady but house prices roaring). I am not going to fall for the trap of buying this, just yet. Will wait for jobs data tonight and another day of buying before committing to it. If I was going to buy it, it would be against the Aussie or Kiwi dollars.
NZDUSD – Inflation numbers this morning disappointed. Like the Aussie the pullback trend is confirmed and if you are not short now you will need to look into the shorter timeframes.
USDCAD – Strong numbers from manufacturing and as I have said I think the Canadians have hit the bottom of the economic cycle and the recovery is underway. With the Loonie at these prices it will help their export market immensely, so I am looking for opportunities to be long it (ie short this pair). Technically we have had a cycle underneath the ema, and last night’s test bar is a good signal. A LHLL seller (preferably bearish) bar in today’s bar will be a signal for me to get short. It will be a hard slog though as the greenback will continue to gain too. Perhaps best to look into other currency pairs such as AUDCAD/EURCAD etc.
USDJPY – Rumours are out the Kuroda will introduce further stimulus. An inside test bar doesn’t give much away but with more yen weakness and stronger greenback it makes fundamental sense to be looking at buying opportunities, which I am.
GOLD – Smoked! 27 bucks. Oops. With the Ukrainian news that is a big hit. You would think geo-political tensions would have gold stronger. No reason to own gold, I have been saying. Not with QE3 coming off the table and perhaps at a faster pace than expected.