Recap

Markets were rocked a little overnight by political instability as the Egyptian President Morsi has been ousted in a Military Coup and the Portuguese Government is in a bind of its own making. In Asia yesterday we saw Oil hit and break $100 Bbl and it stayed there last night while stock markets in Asia and Europe ended in the red. In the US though after opening lower stocks rallied into the the early pre-4th of July close.

The Aussie fell out of bed, again, after RBA Governor Stevens did a little jaw boning but found support in the low 90 cent region while the instability gave the Yen a lift and strangely pulled Euro higher as well.

Better US data helps stocks but knocks US dollar

Stocks in Asia were off yesterday which saw European Bourses open weak before rallying but the FTSE, DAX, CAC and Spanish stocks were all off more than 1% while stocks in Milan were only 0.54% lower. No doubt this was impacted by the unevenness of the Markit Services PMI’s for Europe and the fact that even though Germany got back above the 50 median line it missed expectations by a wide margin. This gave US stocks a weak lead in but with the shortened holiday session and the slightly better than expected ADP employment survey and the jobless claims, which were released a day early because of the 4th of July holiday tonight.

The ADP survey showed private sector jobs were up 188,000 against 160,000 – which I guess is more than “slightly better” and perhaps, lets hope, this precurses a strong non farm payrolls on Friday night. Jobless claims were down 2,000 to 343,000.

At the close the Dow was up 0.38% to 14,989, the Nasdaq was up 0.31% but the S&P 500 was up just 1 point to 1615. As discussed yesterday the S&P 500 is caught in a 1590-1620 box and a break either way is likely to be decisive. As ever non farm payrolls Friday will set the tone.

Glenn Stevens talks the Aussie Down and Yen benefits from geopolitics

Just like his counterparts at the Fed who are openly discussing the taper RBA Governor Glenn Stevens knew exactly what he was doing yesterday when in answer to a question he noted that the RBA ”deliberated for a very long time” at this week’s meeting on whether or not it should cut. I noted after the statement on Tuesday that the RBA was still going to cut and that it wanted the Aussie lower and these 6 words were pointed and achieved part of his goal as the Aussie fell to a low of 0.9037 overnight. That is now a full 15 cents off the high in April and by any stretch qualifies as a cascade over the waterfall – the question of course though is where will it stop?

Certainly Stevens wasn’t just aiming at 90 cents and certainly I have had a target of 0.8916 for a week now but it is worth noting that the low 80 cent region now has to come into the frame on a multi-week and month region.



Having said that though last night I put my toe in the water with an Aussie purchase and even though I got stopped out on the run down to 0.9037 I’m thinking there could be a little bounce before the eventual break of 90 centsd.

Elsewhere the Euro and Pound rallied against the US dollar after early weakness which makes absolutely no sense to me but it is what it is. Euro sits at 1.3011 up from the low at 1.2922 yesterday and the GBP is at 1.5278. The Yen did as the Yen often does when instability rise and rallied against the US dollar after making a high around 100.80 which, as you can see in the chart below was right on an old trendline which was previously support for the rally and now forms restance for this latest move.



I know some readers are very adept at charts while others are less so but in very simplistic terms as you can see in the above it is often worth leaving old trendlines on your charts. Support is 98.50 and resistance 101.04 today.

Crude spikes

The volatility in the Egyptian political situation added to what we are seeing in Syria pushed crude sharply higher in the past 24 hours – or at least that is the excuse that we see written everywhere but then last night the EIA released the latest stockpile stats for the US and we saw a huge draw of over 10 million barrels. At $101.08 crude is at its highest level since January 2012.

Gold rallied a little as well to $1247 oz and Copper is up 1.02%.

Data

A holiday in the US tonight for 4th of July so it might be fairly thin today but BoJ Governor Kuroda speaks and the ECB and BoE both have pending interest rate decisions.

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

- Greg McKenna, Vantage FX Analyst