When you have had a move like we had Friday there is usually a time for reflection by market players. This is particularly so when the short term technicals are so over cooked as they were for many markets and particularly when the rally occurred on the last trading day of the quarter as was also the case Friday.
So it was no surprise that markets didn't really kick on overnight and spent some time consolidating. What is remarkable however, in the face of the economic data that was out overnight which painted an undeniable picture of a slow growth future, was actually how well they held their gains - or how little they slipped back.
The day started out a little better with the Tankan in Japan printing on the topside of expectations but the data from China, although also besting expectations, showed a further deterioration from the month before. So concerns about a Chinese recovery were doing the rounds in our day yesterday dampening economic expectations.
As we moved into Europe things didnt get any better, at least economically with European PMI data weak if not a little better in most places than expected. Equally US data was weak with the ISM printing 49.7 which was well below the previous month's outcome of 53.5 and expectations of 52. A truly poor number compounded by the fact that new orders collapsed in a manner not seen since 9/11 and the 1970's. So the internals of this number (like the Chinese data) were terrible.
Yet Equity markets largely ignore the poor data but it is something to keep in the back of your mind if you are a fundamnetally based trader because it speaks to a weak growth future but equally these data are going to force the hand of the globes central bankers for more monetary accommodation and although they do paint a picture of low growth they also paint a picture of an ECB cut this week and QE3 eventually in the US - particularly if we get a weak non-farm payrolls on Friday.
At the end of play it was another good night in Europe for equities with the DAX up 1.24% the CAC up 1.36% the FTSE up 1.25%. In the US a mini rally toward the close of the day saw the earlier losses erased with equities scambling back toward square/in the black. The Dow finished down 0.07% at 12,871, the S&P rose 0.25% to 1,365 and the NASDAQ rose 0.55% to 2,951. Our own ASX 200 futures index is up 0.3% in SPI trading.
On commodity markets Crude slipped back 1.2% after the stellar rally Friday, copper was around 0.75% lower but the overall CRB index was around square. I would characterise this price action as entirely normal after such a strong rally but actually pretty solid in the face of the data.
In Currency markets the Australian Dollar did very well and there were emerging signs in Asian trade of buyers coming back into the market as it held up relative well near the highs. The EUR was knocked by weak data while Sterling like the Aussie was well supported. It seems like all the action is in the crosses as traders and investors seek to work out where the next play is. News that Finland and the Netherlands are going to try to block the new Eurozone package overnight certainly isnt helping the EUR.
Lets have a look at the key FX Markets we follow using our AVAFX trading platform charts.
EUR/USD: We said yesterday that the EUR was not quite there yet and we wern't surprised that it turned lower based on the hourly technicals. EUR needs to kick on through the 1.2738/42 zone if its going higher which for the moment seems unlikely given that our first fibonacci support at 1.2584 is currently being tested. As noted if EUR falls below 1.2550 then the outlook will turn south once more and reinforce the range trading nature of the outlook.
AUD/USD: My trend following systems are long but the AUD is struggling to get through and hold above 1.0262 which is necessary to kick it toward the 1.0474 region. The consolidation overnight was encouraging for the bulls though so we'll know in the next 12 hours if the AUD is on its way higher or needs to reconsolidate the break of the trend line - I like it higher though.
Short term support on the AUD is 1.0202 and below that the 1.0140/60 zone. I'm bullish.
GBP/USD: Like the AUD sterling was better bid last night particulalr against the EUR. In a fundamental sense this is probably driven by the unexpected bounce in the UK PMI against enduring weakness in the EUR PMI indicators and particulalry the really weak Spanish PMI.
Against the USD sterling still needs to take out 1.5771 to kick into the next range and as you see in the chart it remains in the uptrend and last nights lows of 1.5640 reinforced the support in the 38.2% fibonacci zone which comes in at 1.5627 as noted yesterday. EUR/GBP got down to 80 last night and we are watching this for an indicator on the moves for both crosses.
USD/JPY: The uptrend was reinforced overnight with a touch and then "bounce" off the trendline at 79.28 we mentioned yesterday. Momentum is starting to run out of this cross however on both the dailies and the hourly charts. The fact that USD/JPY has not been able to get back through the 50% retracement of the March/May sell off at 80.88 is problematic for the bulls. I won't be trading this pair unless it trades above 81 or below 79 from a medium term point of view. Shorter term day wise a move above 80 would get me in and of course a move below 79.
EUR/JPY: Also retraced yesterday and found support at the 50% retracement of the rally last week at 99.85. The hourlies are suggesting that this pair might have a little rally in Asia today and support comes in at 99.85 then 99.49 with resistance 100.40 and then 101. longer term 101.60 needs to break for this to kick higher.
Data today is focussed on the RBA and the language they use to describe the data since they last eased and also what happened in Europe last week. We don't see any chance of another cut anytime soon.
Written By Greg McKenna for Ava Fx on behalf of Macro Investor
