US economic weakness drives Euro breakout

Quick Recap

It was a huge night last night with some very troubling moves across a host of markets.

I’ll get to what troubles me a little later but in summary stocks in Europe and the US were lower, German 10 year Bunds were sharply higher and the Euro broke up and through resistance, suggesting this US dollar reversal has a lot of room to move. Iron ore was off, the Aussie dollar was stable and indications are the selloff on the ASX200 looks set to continue today.

Looking at the Euro and the break higher looks slightly hot on the dailies but on the weekly charts this could seriously be the start of something much bigger. I’m looking for 1.15 for the moment and then we’ll see. That’s important for the Aussie because as the Euro, and CAD and Sterling, break higher the Aussie is going to get dragged higher as well.

That makes the RBA meeting next week seriously ‘LIVE’ even though I think they are more likely than not to hold rates steady at 2.25% becuase it seems to me that the domestic economy is recovering.

On the Fed and the Data in the US overnight here is what I said at Business Insider this morning:

The catalyst for these moves was the very weak print for US Q1 GDP at just 0.2%. The market had expected 1.1% — or at least the economists had — but anyone looking at the Atlanta Fed’s GDP Now indicator would have been well placed for this lower-than-consensus result. We already knew the Fed thinks this is temporary and their statement last night reiterated that view. The Fed said “economic growth slowed during the winter months, in part reflecting transitory factors.” That’s important because if the data does not start to lift off, expectations of the beginning of the Fed tightening cycle will drift out to 2016.

Now to what is troubling me about last night. It’s only one night so I’m not going to go all ‘chicken little’ but market blow ups generally start in bonds/credit/interest rate markets. So the 75% increase in German 10 year Bund to 0.29% overnight is s sign that something might be afoot. UK, Italian and Spanish bonds rose as well and the previous night US 10’s were up 10 points for no good reason.

I’m just watching this space and looking out for a chance to sell stocks globally (not just the ASX) if this plays out as it might. It also means I’m getting ready to go short USDJPY as well. If something gives.

On the day

On the data front today we get private credit and the import and export price indices in Australia. The BoJ has a policy announcement and tonight we get German retail sales, EU CPI and the all-important US personal spending and consumption data, along with the employment cost index.

Here’s the overnight scoreboard(7.24am AEST):

• Dow Jones down 0.41% to 18,035
• Nasdaq down 0.63% to 5,023
• S&P 500 down 0.37% to 2,106
• London (FTSE 100) down 1.2% to 6,946
• Frankfurt (DAX) down an incredible 378 points or 3.21% to 11,432
• Paris (CAC) down 2.59% to 5,039
• Tokyo (Nikkei) flat at 20,058
• Shanghai (composite) flat after a wild ride at 4,476
• Hong Kong (Hang Seng) down 0.15% to 28,400
• ASX Futures (SPI June) -44 at 5,783 YUK!
• AUDUSD: 0.7988
• EURUSD: 1.1113
• USDJPY: 119.05
• GBPUSD: 1.5424
• USDCAD: 1.2015
• Crude: $58.55
• Gold: $1,204

CHART OF THE DAY:

EURUSD: Weekly breakout can run further.