Australian Dollar Morning Report - Euro roars, Ausssie recovers as markets await Bernanke

The Euro is at it again driving to a new 11 month peak at 1.3404 in overnight trade as markets await a speech by Fed Chairman Ben Bernanke which is due to kick off around 8 am Australian time.

The speech is widely expected to reiterate Bernanke and the Fed's dovish credentials and to reiterate the policy of low rates and bond purchases for the foreseeable future and or until unemployment rates drop to 6.5% in the United States. This expected dovishness when juxtaposed with Draghi's more hopefully upbeat tone last week is what is ostensibly behind the drive higher in the Euro but something else is afoot because how can Euro make a new high for a while on a night where European industrial production printed at -0.3% versus expectations of a rise of 0.1%. 

It makes no sense at all. Well perhaps it does actually. When the Euro was first launched as a single currency in January 1999 it first traded at 1.1747 against the US dollar but by October 2000 it was trading down at 0.8225 before recovering back above 1.00 in June 2002. It was an interesting time and I remember an academic paper that was written where the authors looked at the reaction of the EURUSD rate to data announcements. To quickly summarise on the way down anything good for the Euro and bad for the USD was ignored with a focus on Euro negatives while the reverse was the case on the recovery.

Proof - if you need it - that market psychology is a key component in market price action. So it is at the moment - for whatever reason, probably just pessimism fatigue over Europe, the Euro is benefitting in an outsized way when fundamentally it probably has no right to. Indeed the opening paragraph of a story about the European IP data overnight I saw on Reuters summarises the point about the framing of data results nicely. Even though the data was weak the article stated, 

Output at euro zone factories fell for the third straight month in November and against expectations of a rise, but Monday's data included some evidence to back hopes that the bloc's recession may now have bottomed.

Yeah yeah sure the worst is over for the Euro zone - tell that to the more than 26 million unemployed people in the EU. But remember folks even though we marvel at the optimism about Europe in a fundamental sense we never, well most of the time, let our rhetoric get in the way of our trading. 

Stocks

At the close the FTSE was down 0.22% and the UK and Uk markets bear watching at the moment as GBP is under pressure and the debate about Britain leaving  the Euro seems to be getting more air time at the moment after the British PM Camerons recent remarks. In Continental Europe however the DAX was up 0.19% while the CAC rose a very small 0.05%. Peripheral markets were on the outer though with Milan down 0.64% unable to escape the release of weaker than expected Italian IP data which showed a 1% in November and an acceleration of the yoy decline in production to 7.6% from the last print of 6.2% and against expectations of a deceleration to 5.2%. Spain joined the selling and Madrid stocks were 0.38% lower. 

In the US the big news in in tech. Dell is rumored to be going private which has seen its shares rise while Apple is under pressure again after news hit the wires that it has slashed its order of components from suppliers - implication taken by the market that sales have slowed materially. 

As you can see in the weekly chart above Apple has gapped lower and is approaching multi-year trend line support which comes in around $469. We always respect trendlines unless or until they break - but we are watching this level.

In an index sense with 34 minutes before the close the S&P 500  is flat at 1472. The Dow is up 0.23% and the Nasdaq is off 0.21%. 

In Asia yesterday Shanghai was the focal point rising 3.08% but this was largely a Shanghai specific move with the other more developed markets, if I can put it that way, in our Asian time zone doing better but not so strongly higher. I do note however that Bombay was up 1.23% and Jakarta rose 1.78% so perhaps some global allocations of cash have found their way into these large Asian emerging markets.

Global FX

As noted above the Euro  hit a high at 1.3404 before pulling back a little to 1.3376 for a rise on the day of 0.28%. GBP was down again however with a fall of 0.29% to 1.6080 and looks weak to us technically. USDJPY roared in early and thing Asian trade yesterday morning making a high at 89.67 which was just shy of the 89.70 Fibo resistance and it currently sits at 89.40 up 0.18% on the day. The AUD is up 0.28% reversing Friday's fall. 

The big mover however is the Swiss Franc both against the Euro and the USD. As you can see in the chart below EURCHF has ramped sharply higher which is clearly part of the broader Euro rally. EURCHF has risen from 1.2070/80 mid last week to a high of 1.2339 this morning. 

Looking at the Euro it continues to work off the hourly overbought status with time rather than price consolidations which suggests that it is rebuilding momentum for another push higher. 

The daily chart above shows clearly the Euro rallying off support and then breaking the recent range top strong support short term should now be found at 1.33 otherwise it could be a false break. 

The AUD has been a volatile beast lately and like the Euro yesterday's weak ANZ Job Ads and fall in home loans had little impact. Clearly the market still likes the Aussie and perhaps my idea that we might be seeing a rotation out of the Aussie is a useless hypothesis - time will tell. 

It seems easier to trade the Aussie on a short 1 or 4 hour time frame at the moment than trying to glean any big picture outlooks as it bounces up and down in a range. Yesterday's low was right on the hourly uptrend we were watching in the office which today comes in at 1.0535/45. 

Commodities

Crude reversed rising 0.73% overnight to $94.24 Bbl. Gold was 0.54% higher and Silver fairly soared rising 2.23% - not for the faint hearted trading Silver these days. Nor the Ags with Corn up 2.15% extending the rally from Friday as did Soybeans which rose 2.46% and Wheat which rose 1.56%. 

Data

Bernanke's speech very soon sets the tone for the next 24 hours, probably next week so watch out this morning. Datwise German GDP is the key for us as is the raft of European inflation data and Spanish 12 and 18 month auction. NY Empire manufacturing and retail sales in the US are also vitally important. 

Catch me on Twitter @gregorymckenna or @FX_Global