US Dollar swoops in from the clouds, Euro crushed

Quick Recap

Okay – what a night.

The Yen broke lower and all heck broke loose yesterday afternoon as risk aversion increased in the wake of the Saudi incursion into the Yemen conflict.

What was weird about the price action that followed was that natural safe-haven Yen buying was accompanied by Euro and Sterling buying. Of course the German consumer confidence at a 14 year high and the big beat in UK retail sales helped.

But as I drove up the freeway toward home from Sydney listening to the cricket and thinking about the market I was increasingly troubled by the price action. Indeed, and you are going to have to trust me on this, the stickyness of USDJPY at 118.40 for an hour or so was to me a sign that it was time to book profits on 50% of the long instituted yesterday afternoon. I’ll wait till we see the CPI this morning to see where to go next on USDJPY.

On the Euro the price action is another test and fail of resistance in the 1.1030/50 region we have identified as crucial. Back below 1.09 the Euro’s rally isn’t ended per se but it’s threatened.

Elsewhere the spike of crude and increase in geo-political tensions in the Middle East weighed on stocks. But they were, with the exception of the UK, down only a fraction of earlier losses. Gold is trying to grind higher also.

On the day

On the data front today Japanese CPI is big. Tonight we here from BoE Governor Mark Carney in a speech which will be important for UK rates and the Pound. In the US we round out the week with the third read of Q4 2014 GDP which is expected to print an annualised 2.4%.

And here’s the overnight Scoreboard (8.20 am AEDT):

• Dow Jones down 0.23% to 17,678
• Nasdaq down 0.27% to 4,863
• S&P down 0.21% to 2,056
• London (FTSE 100) down 1.37% to 6,895
• Frankfurt (DAX) down 0.18% to 11,843
• Paris (CAC) down 0.29% to 5,006
• Tokyo (Nikkei) down 1.39% to 19,471
• Shanghai (Composite) up 0.59% to 3,682
• Hong Kong (Hang Seng) down 0.13% to 24,497
• ASX Futures (SPI June) up 2 to 5,885
• AUDUSD: 0.7826
• EURUSD: 1.0872
• USDJPY: 119.18
• GBPUSD: 1.4846
• USDCAD: 1.2477
• Crude: $51.01
• Gold: $1,204

CHART OF THE DAY:

AUDUSD: Looking to test support

I’ve been talking about support in the 0.7780 this week for a possible retest. We achieved the 0.7730 test that was expected but last night’s low of 0.7798 was a little above support zone.

The 4 hour charts suggest that the a test is a real chance in the next day or so.

Yesterday I said on the EURUSD: “So close – the 1.1030/50 region is the key.  We only have 50% of the position left and I’m waiting to see how this plays out. It’s starting to look much more positive. Another weekly close up or near here, even a break, would be great.” Last night’s reversal threatens that outlook.