S&P 500 right on support, US dollar falls after reports Obama said US dollar too strong

Quick Recap

The global forex wrestling match has been a lot of fun for traders over the past few months with clear signals giving way to pretty clear trading moves and directions.

That’s except for yesterday when comments attributed by a French G7 official to US President Obama saying that the strong US dollar as a problem caught traders on the hop. The White House has disavowed themselves of the chat but as I suggested at Business Insider this morning:

Given that Obama was at the G7, where such topics are discussed, and given that the OECD just last week released a report saying the strong US dollar is a huge drag on US growth and corporate profits, it doesn’t seem unreasonable to assume something might have been said.

The Euro surge drove it back to 1.13 this morning while the associated US dollar fall has helped the Aussie dollar toward 77 cents this morning.

That’s very different to the way things might have been after the really strong US non-farm payrolls increase of 280,000 in May. That was more than 50,000 more than the average market guesstimate. But the really instructive information, and the set up for yesterday’s rally, was how well markets actually held in on Friday night in the face of such strong US data and a clear inference that September is on the FOMC’s agenda for a possible start to the Fed’s tightening cycle. “It’s not just that jobs are growing strongly once again but at the same time wages are starting to head higher.”

In Asia Shanghai is ripping higher on the back of expectations that the MSCI decision to include Chinese stocks in the EM index will be made today. MSCI estimates that around $400 billion will move toward Chinese stocks on the back of such a move once made.

In Australia however the market remains under pressure after a terrible week last week. The ASX is already down 8% from the highs but where the bottom is on this run is as yet unclear given continued pressure on the Major banks, which make up around 27% of the index.

With regard to the greek troubles, which were a marginal positive for the Euro as well a report from The Wall Street Journal on Monday afternoon said Greece’s international creditors suggested extending its bailout program until March 2016. That initially lifted US shares out of the doldtrums but in the end they closed at or near their lows. European stocks were down as well as German and other EU bonds are rising. As highlighted Friday the DAX remains under pressure.

On the day

Chinese CPI today could be a big event for markets. But closer to home we have the NAB’s Business Confidence survey, ANZ Job Ads and home loan data. Tonight we’ll see Inflation report hearings in the UK and EU GDP for Q1 before the NFIB Business survey in the US and the JOLTS survey.

Here’s the overnight scoreboard (7.20am AEST):

• Dow Jones down 0.46% to 17,766
• Nasdaq down 0.92% to 5,021
• S&P 500 down 0.65% to 2,079
• London (FTSE 100) down 0.21% to 6,790
• Frankfurt (DAX) down 1.18% to 11,064
• Paris (CAC) down 1.28% to 4,857
• Tokyo (Nikkei) flat at 20,457
• Shanghai (composite) up 2.17% to 5,131
• Hong Kong (Hang Seng) up 0.21% to 27,316
• ASX Futures Overnight (SPI June) -26 to 5,474
• US 10 Year Bonds -3 points to 2.38%
• German 10 Year Bonds +4 to 0.89%
• Australian 10 year bonds +9 to 3.06%%
• AUDUSD: 0.7695
• EURUSD: 1.1291
• USDJPY: 124.48
• GBPUSD: 1.5347
• USDCAD: 1.2408
• Crude: $58.33
• Gold: $1,173
• Dalian Iron Ore (September): 435

CHART OF THE DAY: S&P 500

The S&P 500 is testing the last couple of months trendline. A break of 2,075 would signal a further fall.

That’s important for all markets because if stocks start to go “off” risk is likely to follow which means AUDJPY might be a nice short.

I said Friday, “The DAX is breaking down. It has about 400 points till the bottom of this down trend line I expect it to hit. IT’s not UBER bearish yet but it’s a global stock market canary which makes it a global market canary.” I continue to hold this view on a multi week time frame.