US dollar surge sweeps all before it

Quick Recap

The first Fed rate hike looks locked and loaded now that the data in the US has started to take a turn for the better. After the solid rise in home starts last week data overnight showed a strong rise in core durable goods which printed 1% versus the 0.3% that was expected. Consumer confidence also rose, printing 95.4 while the Case-Shiller house price index was 0.95% higher.

That’s a pretty good run of data and uncommon given that the US economy has been undershooting expectations for months now. It has also driven a renewed focus on the continued message from Janet Yellen and her colleagues on the FOMC that rates are still set to rise.

My colleague Akin Oyedele from Business Insider in the US has written an interesting article about the Fed throwing down the gauntlet to markets and the fact they, markets, are finally taking notice.

So we saw a big move in forex rates with the Yen at an 8 year low, Euro back under 1.09 and the Aussie dollar closing in of 77 cents. USDCAD is well through 1.24 now and the outlook is for further US dollar strength across the board based on the technicals.

That hasn’t hurt stocks too much yet – but it might if the data starts a run of strength. Equally greece remains a clear and present danger.

Interestingly US Treasuries rallied hard last night even though the US dollar rallied and Fed expectations rose. That’s because there was a bit of risk aversion – I hate that term – insofar as greece and Spain now are worrying people. Time will tell.

On the day

On the data front today, we get the release of Australia’s Q1 construction work done. It’s a partial indicator feeding into capex tomorrow and then the upcoming GDP release. Tonight in Germany we get the Gfk consumer confidence survey, mortgage applications and the Redbook in the US and then an interesting BoC monetary policy decision and announcement. There is also a big G7 meeting in Dresden.

Here’s the overnight scoreboard (8.23am AEST):

• Dow Jones down 1.04% to 18,041
• Nasdaq down 1.11% to 5,032
• S&P 500 down 1.03% to 2,104
• London (FTSE 100) down 1.18% to 6,948
• Frankfurt (DAX) down 1.61% to 11,625
• Paris (CAC) down 0.66% to 5,083
• Tokyo (Nikkei) up 0.12% to 20,437
• Shanghai (composite) up 2.02% to 4,910 (that’s it for me)
• Hong Kong (Hang Seng) up 0.92% to 28,249
• ASX Futures Overnight (SPI June) -30 to 5,748
• US 10 Year Bond down 2.14%
• Australian 10 year bond 2.84
• AUDUSD: 0.7737
• EURUSD: 1.0883
• USDJPY: 123.02
• GBPUSD: 1.5385
• USDCAD: 1.2430
• Crude: $58.29
• Gold: $1,187
• Dalian Iron Ore (September): 435

CHART OF THE DAY:  AUDUSD

A big break and there is room for short term consolidation given we have had such a big move. But the target now is for lower levels.

I haven’t got one badly wrong for a while but while I got the Euro leg of Euro Yen right I wasn’t focussed on the Yen selling off so sharply. Prices yesterday briefly pierced my slow moving average but the fact they rebounded so quickly and then didn’t break down again protected me from big losses.