Recap

More concern over the past 24 hours about the path of Fed policy when the FOMC meets next week which caused more selling in stocks, bonds and FX markets and a generalised increase in volatility coming from fear of the unknown or should I say fear of the unknown market outcomes if the Fed tap is turned off.

Asian markets remain under pressure in a clear sign that capital is returning to the safety of home currencies which is helping the Yen, Euro and Pound but strangely putting the US dollar under a little pressure. Bonds remain under selling pressure too with the US 10 year at another 1 year high overnight.

It is another week before the FOMC meeting and it could be fraught with danger and uncertainty.

Stocks sell off again

Journo’s, pundits and blokes like myself are great for gather useless, but somewhat interesting markets stats sometimes and I picked up a cracker in a Reuters story this morning,

The Dow on Wednesday swung more than 200 points for the seventh time in the past 15 trading days, going back to Ben Bernanke’s latest Congressional testimony on May 22.Yep, its all about the Fed and its all about the drugs that the stock market is on and knows is the only thing keeping the market up. As you can see in this chart below which I used in my Free Weekly Newsletter first a month ago and then again on the weekend saying,



What is clear is the relationship between the Fed buying bonds and the cash finding its way into stock prices.

As momentum built in April and May and as Abenomics was flooding the global economy with more cheap money the Fed has clearly made the decision that enough is enough and the cure of the GFC economic weakness disease should not include a new stock market bubble.We’ll know more next week but in the mean time we have a bit of a vacuum where fear is trumping hope and stocks are under pressure.

Last night stocks were down from the get go in the US and just kept heading south. At the close the Dow was down 127 points and back below 15,000 at 14995. The Nasdaq was 1.08% lower and the S&P is once again closing in on critical support falling 13 points or 0.81% to 1613.



The trendline comes in tonight at 1607 in terms of the pricing on my VantageFX MT4 platform which is the level to watch. Notwithstanding the fact I respect trendlines until they break my process suggests a break of the line.

In Europe it was the weakness in the US that dragged stocks lower with the FTSE down 0.65%, the DAX off 0.97%, the CAC off 0.43% and stocks in Milan off 1.61%. Somehow stocks in Spain rose 0.43%.

FX markets still don’t like the US dollar

The US dollar was stronger until last week on talk of the Fed taper but now it seems that the resonance that this delivered for the Buck has faded since then as markets have become more unstable and stocks in the US have come under pressure. The Yen’s resurgence makes sense from where I sit both fundamentally nd technically but the Euro’s rally is harder to fathom but it just keeps on keeping on trading up to a high of 1.3359 overnight and it sits at 1.3338 as I write. GBP was also a little higher at 1.5678 and USDJPY continues to sell off within a wild range trading 95.13-97.02 in the past 24 hours and rests at 95.93 this morning.



The Aussie Dollar had a wild ride as well trading down to 0.9413 yesterday around lunch time before rallying strongly as Europe entered the fray yesterday afternoon/evening before making a high of 0.9563 before the sellers entered driving it back to 0.9470 this morning. The Aussie is trying to base but remains under pressure.

Commodities

Interesting night and I confess to not really being able to put the moves in context except to say that they were a result of a weaker US dollar. Indeed there was a huge and unexpected build in crude stocks in the US overnight but Nymex crude still managed to finish up 0.40% to $95.76 a Bbl. Gold was up 1.07% at $1388 Oz, Silver was up 0.70% and Dr Copper was 1% higher.

Interesting night.

Data

The US finally joins the fray tonight with jobless claims, retail sales, business inventories and export and import prices. But before that we see the release of the extremely volatile employment data in Australia with the punditry expecting a rise of 10,000 but the NAB business survey amongst others suggesting that the number might be undershot.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can.

NB: Please note all references to rates above are approximate and should not be used for trade reference