Fed warning on rate hikes and weak Chinese data drives US dollar knocking the Aussie dollar and Euro for six

Quick Recap

The rally on the Shanghai and Hong Kong stock exchanges yesterday was lost on traders in Europe and the US who preferred to be more circumspect before earnings in the US this week and the recent highs reached across the globe.

But the implications of the weak Chinese data yesterday weren’t lost on forex traders who thumped the Aussie dollar, Kiwi and even the Brazilian Real overnight. As I highlighted yesterday afternoon in my Asian Trading Wrap “the market has been worried bout Chinese growth undershooting expectations. This data reinforces the trend which is no good for the commodity twins of the South Pacific.” 

Last night we didn’t take out the lows in the Aussie, Euro, Kiwi or others. So I am not getting uber-bearish – rather for the moment this is a test of support at the bottom of the range – but if the lows give way watch out.

Greece is still in the headlines and it is worth reiterating what I wrote at Business Insider this morning.

Greece has denied an FT article saying it is readying itself for a debt default if talks with creditors fail. But time is running out, again, for Greece it seems. As I noted yesterday EU officials are tired of the Greek “Taxi Driver” approach of asking for more money. They are also tired of being mae to look fools by the grandstanding of the greek Finance Minister. To us here in Australia that may seem like a normal day in politics but many of the Northern European EU members seem genuinely affronted with the Greek approach. I expect we’ll here more of this over the next few weeks.

The Fed is also still in the news with San Fran Fed President John Williams once again reiterating that the FOMC wants to hike rates. He also said that rates will be rising as much for symbolic reasons to get the market used to it as for ecnomic reasons. Williams said that the risks to the economy of a Fed hike are less now and any damage can be mitigated by slowing the pace of interest rate normalisation which he expects to take “several years.” This just reinforces the support for the US dollar from interest rates and with it testing 100 again in DXY terms its just a matter of time.

On other markets the price of iron ore leapt 3.43% in the past 24 hours with the price now back at 392 for September Dalian futures from the low 370’s just a couple of days back. I reckon the kind of panic we heard from treasurer Hockey saying there’s bottom in the price is just the kind of view we need for a bottom. I also believe the Majors know they might be pushing a little hard at the moment. Gold is back below $1200 and crude rallied a little.

On the day

On the data front today we get the ANZ weekly consumer confidence dat in Australia before the NAB Business survey at 11.30am. New Loans is out in China and will be watched closely. Tonight we see a huge raft of inflation data out with the release of US and UK PPI, UK CPI, German WPI, and Spanish CPI. But, its US retail sales that seem likely to be the big event of the night. The market is looking for 1.1% month on month for March after last months 0.6% fall.

Here’s the overnight scoreboard (7.50 am AET):

• Dow Jones down 0.45% to 17,977
• Nasdaq down 0.15% to 4,988
• S&P 500 down 0.46% to 2,092
• London (FTSE 100) down 0.36% to 7,064
• Frankfurt (DAX) down 0.29% to 12,338
• Paris (CAC) down 0.26% to 5,254
• Tokyo (Nikkei) flat at 19,905
• Shanghai (composite) up 2.16% to 4,121
• Hong Kong (Hang Seng) up 2.73% to 28,016
• ASX Futures (SPI June) down 8 to 5,936
• AUDUSD: 0.7583
• EURUSD: 1.0568
• USDJPY: 120.14
• GBPUSD: 1.4672
• USDCAD: 1.2588
• Crude: $51.99
• Gold: $1,198

CHART OF THE DAY:

AUDUSD: Trading is really when you take your time, are patient and don’t chase levels.

The Aussie move yesterday was a case in point – the up sloping line was at 0.7640 and once the Chinese data knocked it through this level the sellers entered the fray.

Key support level now is 0.7532 and the key data points are NAB Business today, Westapc Sentiment tomorrow, Chinese GDP tomorrow and Australian unemployment on Thursday. resistance is 0.7640/45.

Euro looks weak but as an old trading mentor always said to me – “Barney, always looks good at the top and <inser colourful word> at the bottom. So  as noted yesterday Euro is “going to test under 1.06 possible the March lows in the days ahead.”But we are in a big old box so don’t get too bearish unless the parametres give way.