Morning Report - AUD roars as stocks recover

This really is a wild and crazy time for markets at the moment.Not the scaryness of the Greek, Italian and Spanish induced messes we have been in around this time of year since 2010 but certainly an unstable time as the market grapples with exactly what the Fed is going to do and wonders about the efficacy of Abenomics for Japan. 

On the former I would say that for me the data last night which saw jobless claims and retail sales in the US print a little better than expected to me suggests that the talk of tapering next week from the Fed is likely even if they are going to try to do it in away that is least disruptive to markets. On the latter I would say that if the market is genuinely questioning whether Abenomics will work then the Nikkei should be lower but so too should the Yen be not strengthening like it did again overnight.  

But such is the nature of markets at the moment and such is the reality that volatility is clustering that price action is oscillating through big ranges and large moves -particularly in FX markets. 

Speaking of which the Aussie Dollar caught a strong bid in early European trade for the second or third day in a row but what was different this time, overnight, was that the sellers didn't come in to slam it lower and it rallied up to about 0.9650 prior to the US equity market close at 6 am Sydney time this morning.  It speaks of a market that might be, we know the specs are, a little or a lot short on a daily time frame and suggests a market that now needs reasons to sell as opposed to reasons to buy which has been the modis operandi for the past 3 weeks.

One thing I will say and that Ifind very interesting about the price action, or at least the persistent buying since the low earlier this week is that I may need to reconsider whether if markets go pear shaped, especially if emerging markets are or have joined the rout, whether the Aussies recent safe haven status doesn't by default comeback.

It's worth thinking about even if it would be very counter-intuitive in a market rout usually.

Anyway to the charts and just like gold before its big crash the Aussie may be mapping out a long term decline for the moment and may have found support at the bottom of what is becoming the channel as you can see in the weekly chart above. If we assume this is the case and if we look at the Dailies (chart here) then there is now a fair chance of a further rally using my usual process with a target of 0.9752 with an outside chance of 0.9885. On the day moves back to 0.9557 are likely to be supported.

With the Nikkei down more than 6% it makes no legitimate reason for the Yen to be stronger and at some point this relationship will break down as the market figures out that the Nikkei and Japan are mere shadows of their former self. But for the moment the Yen's strength is probably the key reason that the Nikkei is under pressure along with questions about the efficacy of Abenomics. It's a messy time and a very uncertain one in the lead up to the FOMC and BoJ Governor Kuroda's comments yesterday that "Markets will gradually calm down" was hardly encouraging for Japanese investors.

So to see USDJPY down at 94.84and to see it there after making a low overnight of 93.78 after a high of 96.08 yesterday is interesting an another example that Mandelbrot was right and volatility clusters.

As you can see in the chart above the USDJPY sell off has now satisfied, or within 20 pts anyway, what I consider to be a "Usual"or normal retracement of 38.2% which is of course a key Fibonacci level. We could be in for a big rebound but it is too early to tell and a move through last nights low of 93.78 and the "actual" level at 93.60 would be asign of a deeper move. I don't expect this level to break at present.

The Euro had an interesting night trading from a high yesterday afternoon around 1.3390 to a low of 1.3278 and it finds itself back at 1.3373 this morning essentially unchanged on the day and looking very strong. The pound was stronger trading ONLY (note irony)90 point range for a gain and it sits at 1.5691.

On stocks you could have been excused as Asia closed and Europe opened for thinking it was going to be one heck of an ugly night as the Nikkei closed down 6.35%, Hang Seng off 2.19%,Shanghai of 2.84% and Europe walking in weaker down more than 2% in many markets. But the better than expected jobless claims which dropped 11,000 from expectations printing 334,000 and the big rise of 0.6% in Retail sales for May against expectations of 0.4% saw stocks rally all day dragging Europe out of the Doldrums.

So at the close the FTSE was up 0.09%, the DAX down 0.59%, the CAC up 0.11%, the FTSE in Milan up 0.57% but stocks in Madrid fell 0.64%.

In the US the Dow closed up 181points or 1.21% at 15176, the Nasdaq up 1.31% and the S&P 500 rose 23points or more than 1.4% to 1636.

The chart above of the S&P 500 daily shows that it penetrated but rallied back above important support as shown by the trendline (if you would like to see how it looked yesterday afternoon in Asia the link is here). What you can also see is the low of 1597 (VantageFX MT 4 pricing) was also the low las tweek so a break of the line and 1595 would be a big move if it comes now.

Briefly oncommodities Nymex crude was up again rising 0.89% to $96.73 bbl but Gold,silver, and Dr copper were all lower falling 0.35%, 0.98% and 1.24%respectively.

Data 

In New Zealand PMI and Food Price Index are released before inflation and employment data for the Eurozone as a whole. PPI is due out in the States and then industrial production and capacity utilisation.

So an interesting slide into home plate for the week over the next 24 hours without any real macro catalyst which implies last nights moves might continues.

Twitter: Greg McKenna or @macro_business