In the end though it was marginal new highs for the S&P 500 which rose 0.17% to 1683 and the Dow which closed 0.13% higher to 15,484 and the Nasdaq was 0.19% higher. In Europe stocks closed off their highs except in Milan which finished up 1.08%. The FTSE was 0.63% higher, the DAX rose 0.27%, the CAC was up 0.62% and stocks in Madrid rose 0.13%.
Bonds were better bid as well with Portuguese 10 years down 21 basis points while those in Spain, Italy and the US rallied about 4-5 basis points.
On FX markets the US dollar took a bit of a hit after the retail sales from what had been an improved performance driving the Aussie down to 0.9033, Euro down to 1.2993, Sterling to 1.5026 before all bounced back to 0.9098, 1.3063 and 1.51 respectively as I write. The fact that Empire manufacturing printed 9.46 against 5 expected was lost on the US dollar traders who are now focused on what Fed Chairman Bernanke is going to say later this week when he wanders up to Capitol Hill to address US law makers – what us old blokes used to call the Humphrey Hawkins testimony.
Irrational Exuberence is alive and well
Readers know I’m not exactly a stock market bull but the S&P is closing in on a break of the all time high and based on a system I use of high, retracement to Fibo support and then move back to the high is close to signalling a Fibonacci extension. Of course I will respect the high unless or until it breaks but if we see a weekly close above the current high will target a move, drum roll please, to 1835/40. Now of course every fibre of my being is fighting that notion but the daily and weekly JimmyR is pointing higher – so at the very least I won’t be shorting until I get a clear signal to.
Interestingly though is the fact that so many pundits are upgrading their forecasts for the stock market in the US and Ed Yardeni who is a fellow I used to follow years and years ago when he was at Deutsche Bank and for whom I have always had the utmost regard put out a note overnight which I picked up at BusinessInsider part of which says,
The market’s reaction to Bernanke’s comment suggests that the Irrational Exuberance scenario is back in play. I still assign it a 30% probability. However, it is certainly looking more credible again now that the S&P 500, S&P 400, and S&P 600 are all at record highs. Valuation multiples remain rational, and record highs in forward earnings suggest that the fundamentals continue to support those valuations.
We may be in for another four years of this bull market if it doesn’t melt up over the rest of the year.I noted in the weekly on Saturday that I remain underinvested in stocks and I noted the lack of bearishness in the market as a potential sign that much is built into stock prices I’ll stick with this position but the chances of a blow off seem to be increasing – but then of course we have the taper coming so this could just mean more volatility up and down.
FX markets awaiting Bernanke, Aussie eyeing RBA Minutes today
Given that Chairman Bernanke’s words were the most important thing to occur in FX markets for the US dollar last week the fact that he is speaking twice this week up on Capitol Hill this week means that it is entirely rational for FX players to play the range until that time and the next round of volatility inducing chat from the Fed Chairman. So it was overnight as I noted in the recap above.
But it is worth thinking about what Bernanke might say in the prepared text of his speech and what questions he might get pressed on by lawmakers in the Q&A section of his address. Personally I reckon he is going to continue to nuance the message that the Taper is not higher rates per se. I also expect him to reiterate that just because the Fed is going to reduce the bond buying program does not mean rates are rising anytime soon and to further reiterate the point made last week that the unemployment rate of 6.5% is not a trigger but a guide.
If the message is received then given extreme positioning in the Aussie (-63,255 contracts for big Specs in the CFTC CoT report) and bearishness in Euro (-40,900), Yen (-80,305) and Pound (-34,259) there is a chance of further US dollar weakness.
If however he is forced by lawmakers to state the tape is coming regardless then it could be the US dollar strengthens – I don’t know yet but there are clear levels in all these currencies to trade off.
On the day USDJPY has the clearest levels with 99.49 support and below that 98.80 which I would consider a big break. For the Aussie today a break of 0.9120/30 would open up a decent topside run while the Euro levels are support at 1.2990 and resistance at 1.3092/1.3104.
We need to watch the Aussie today at the release of the RBA minutes at 11.30. How bearish will they be on the economy? Probably not as bearish as they might have been before RBA Governor Stevens lame joke about the deliberations. So the Aussie might catch a lift
On Commodity markets if Gold breaks 1302 I am going to go long for a little run higher of maybe up to $30 bucks obviously with Gold in the $1280′s that seems some way away but it fits with the overall US dollar risks as articulated above for later this week. On the other hand the 4 hour charts suggest that a break of $1273 to the downside would be the break of a little flag and so turn focus lower. As I said there are clear levels to watch across the board at the moment in many markets.
Nymex crude was up a little further as well rising 0.49% to $106.47, Silver was 0.24% higher at $19.92, Doctor copper is at $3.17 lb and Corn and Wheat fell 1.56% and 1.69% respectively while Soybeans went the other way rising 1.73%.
Data
New Zealand CPI and RBA Board minutes before UK and EU CPI and German ZEW survey. The US also has CPI out which could be important given the Fed is fighting potential deflation and this could impact Taper talk. Industrial Production, Capacity utilization and the NAHB market index are also out in the US.
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
Subscribe to Greg's reports daily at www.vantagefx.com/marketwrap
In addition to the website disclaimer below, the material on this page prepared by Vantage FX Pty Ltd does not contain a record of our prices or solicitation to trade. All opinions, news, research, tools, prices or other information is provided as general market commentary and marketing communication – not as investment advice. Consequently, any person acting on it does so entirely at their own risk. The expert writers express their personal opinions and will not assume any responsibility whatsoever for the forex trading account of the reader. We always aim for maximum accuracy and timeliness, and Vantage FX shall not be liable for any loss or damage, consequential or otherwise, which may arise from the use or reliance on this service and its content, inaccurate information or typos. No representation is being made that any results discussed within the report will be achieved, and past performance is not indicative of future performance.sary.
Recommended Content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Bitcoin price extends retreat from $69K as old whales shift their holdings to new whales
Bitcoin price continues to move further away from the $69,000 threshold, gaining ground as BTC bulls hope for a retest of the $73,777 peak. This is because of the general assumption that clearing this blockade would set the tone for a reach higher, marking a new all-time high.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.