AUD/USD – Is the correction over?
2012 March 29 by Graham Parlane
Hi All
The correction down off the 1.08 highs in the AUD/USD (and correspondingly the NZD at 0.8470) started after FED chairman Bernanke made no mention of QE3 in his semi-annual congressional testimony in early March. Through this period the market has concluded that the FED is finished with super easy monetary policy. I have constantly disagreed with this notion. Overnight, and on Monday, Bernanke has been quite clear. He views this recovery as weak and the recent improvement in jobless numbers as non-sustainable. My interpretation is that super easy is here to stay for a considerable time. Indeed the last FOMC minutes reaffirmed the commitment to that until ‘late 2014’.
Another focus affecting the AUD (and NZD) has been that Chinese growth is slowing. Firstly the Chinese themselves revised down their growth to (a still whopping) 7.5% and recent data releases have been weak. However I will contend that the very lengthy Chinese New year celebrations in the most important of all years (Dragon) are impacting on these recent releases and that we will soon see an improvement (Sunday’s PMI release?).
Looking at the charts, overnight the AUD/USD made a strong comeback precisely off my up-trend line off the October 2011 0.9400 low.
My suspicion is that the time to buy is upon us for a return to the dominant up-trend. That said, there is significant event risk in the form of the Chinese PMI released on Sunday and no doubt digested in the thin trading conditions of Monday morning.
A specific trade recommendation has been made available to our client base. If you would like to know more, please feel free to contact us.
Regards G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 March 29 by Graham Parlane
Yesterday/Overnight
# BNZ commentary on the NBNZ Business Opinion Survey released yesterday – We thought last month’s National Bank Business Outlook was nothing short of staggering but this month’s efforts have completely blown the February report out of the water. A net 38.8% of businesses are optimistic about their own-activity prospects. This would appear to be consistent with GDP growth of around 4.0%. But if you seasonally adjust this reading, you can easily come up with a figure which is 2.0% higher still. Whichever way you look at it, the data imply a much stronger NZ economy than any of us are forecasting
# NZ wholesale interest rates fell in sympathy with offshore moves despite the strong NBNZ release
# Rating agency S&P reminded the market that Greece’s problems are not over and that they may default again
# A Spanish strike in protest of austerity measures also dampened sentiment
# The Euro Stoxx 50 closed down 1.80%
# FED chairman Bernanke told students at George Washington University on Thursday that U.S. growth was below its long-term trend, still in a relatively weak recovery following the 2007-09 financial crisis. Further, a government report on jobless claims contained figures, revised from 2007 and based on updated seasonal adjustment calculations, included a significant upward revision for the previous week’s jobless number. This led to talk that recent declines in new jobless claims might be less significant than first thought (these developments still have me quite comfortable that Bernanke is not done with ‘super easy U.S. monetary policy’)
# Final U.S. GDP figures came in a touch lower than expected at 3.0% versus 3.2% expected
# A late rally in the Dow, to end up 19 points, has seen ‘risk’ reverse earlier losses and end broadly where we left it yesterday from quite sharp dips overnight
# Ireland pulled off complex debt payment deferral. Seems the deal is so complicated that it was described as ‘the Irish government dabbling in the arcane arts of financial modeling’.
Ahead
# NZ building consents
# Japan manufacturing PMI
# Japan Core CPI
# Euro Finance Minister’s meeting
# Eurozone CPI
# US the Chicago PMI and University of Michigan Confidence surveys
# Chinese PMI data (released Sunday. Market talk suggests large players are whipping themselves into a frenzy over this release so Monday could be very interesting)
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 March 28 by Graham Parlane
Overnight
# US durable goods orders number for February disappointed coming in at 2.2% vs. 3.0% expected.
# Commodities tumbled on the report. Further, Crude stockpiles rose dramatically whilst talk increased that several sovereigns were mulling the release of oil from strategic reserves. Crude, Copper, Gold and Silver all fell in the region of 2%.
# The Dow ended down 0.54% whilst the EuroStoxx was down 1.10%
# Apple Inc. hit yet another lifetime high of US$621.45
# The AUD continued to underperform, its recent weakness compounded by comments from noted RBA watcher McCrann who said that the market was potentially under-pricing the risk of an April rate cut. The market has 8 of 25 points ( a 32% chance) of a rate cut priced in.
# The GBP was weak as the final print of UK Q4 GDP showed the economy contracted 0.3%q/q despite the number being as per expectations
# Citigroup’s chief economist said Spain could need a bailout of some form by the end of the year
# The ECB said private-sector loan growth for the 17-nation euro zone slowed to 0.7% in February.
Ahead
# Japan retail sales
# NBNZ NZ Business Confidence
# U.S. unemployment gains
# Fed chairman Bernanke speaks
# U.S final GDP
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Value Investor Conference – Auckland
2012 March 28 by Bryn Griffiths
Bryn Griffiths will be presenting at the Value Investor Conference in Auckland on Friday, 20 April, 2012.
Details of the conference can be found here – Value Investor Conference click here
Update – EUR/AUD – Another Look
2012 March 27 by Graham Parlane
The option strategies profiled on 9 February (below) have performed excellently. Indeed, I had a number of clients try to express this view in ‘spot’ only to get knocked out with small profits in amongst the early two way chop before the cross took off. Guys with 3 month option strategies are up about 150% on investment at the moment.
Sent: Thursday, 9 February 2012, 12:58pm
Subject: EUR/AUD – another look (buy call option)
Hi again
I have just been exploring other ways to capture this trade as I am very upbeat that Greece will come up with the goods in the next few days. Greece has come this far that it is unlikely to cock things up now especially now that the country is governed by non-politician in Lucas Papademos, a Greek economist who was previously Governor of the Bank of Greece from 1994 – 2002.
His appointment has largely taken the political ‘conflict of interest’ (not having to be re-elected) out of the way. Indeed all the charts, be it EUR/JPY, EUR/USD or EURAUD all scream that the smart guys understand the likely outcome of the PSI negotiations.
A 1 month EUR/AUD ‘at the money’ call option is ridiculously cheap in my opinion at 0.0175 points. The cross went up that far on Tuesday alone, let alone having the opportunity for gains over 1 month.
Look at the long term chart of the levels needed to profit (I’ll expand it on the 2nd chart).
EURAUD Chart – click here to view
A closer look shows that the average move per month over the last 3 months has been about 600 points (premium in this case 175 points) and we know the EUR market is terribly short.
EURAUD Chart Expanded – click here to view
If Greece defaults you have no further risk that your premium paid, no slippage, no surprises.
Regards G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 March 27 by Graham Parlane
While I was away
# Just as speculation climbed that the Fed may start raising interest rates earlier than thought given signs of continued improvement in the economy, Bernanke damped that speculation Monday. By reiterating that the accommodative near-zero interest rate policy is still needed despite recent gains in employment, because rapid improvement in the labour market might not be sustainable without strong economic growth, Bernanke signalled to markets that it may be premature to bet on a shift away from the prevailing accommodative policy (my base case has been, and remains, that the FED are around for a lot longer supporting the U.S economy. Not only do the Fed think that growth isn’t confirming the 6 month jobs rise but Bernanke has been referring to the approaching ‘fiscal cliff’ where a lot of U.S. govt. spending programs expire this year meaning monetary policy will have to stay around doing a lot of the ‘heavy lifting’).
Overnight
# NZD/AUD trades to fresh 5 month highs at 0.7845 despite last week’s weak NZ GDP result. Not only is RBNZ seen as no rate cut threat whilst RBA is still seen as a medium term risk to cut but one global research house (Nomura) writes overnight that continued insurance flows from the Canterbury disaster are part of the equation
# US Consumer Confidence Index dipped to 70.2 in March from 71.6 in February.
# US Richmond Fed Manufacturing index release for March disappointed, coming in at 7 vs. 18 expected.
# The benchmark U.S 10 year bond ended the session down at 2.19% almost 20 points lower than recent highs
# Spain published a year to date budget deficit of €20.67b
# Industrial action is looming at Australian mining giant BHP
# China’s Shanghai Composite slipped 0.1%, to a six-week low, after the country’s National Bureau of Statistics indicated net income from China’s largest industrial groups dropped 5.2% in the first two months of the year.
Ahead
# RBA financial stability review
# UK current account
# U.S durable goods data
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 March 21 by Graham Parlane
Overnight
# The growth sensitive NZD and AUD both again underperformed as the speculative community trimmed significant long positioning on China growth fears
# US existing home sales fell by 0.9% (+0.9% expected) to an annual rate of 4.59m vs. 4.61 expected. Further, the inventory of previously owned homes listed for sale increased to 2.43 million, equal to a 6.4-month supply.
# Lumber futures, which have acted as a leading indicator for housing stocks in the past, were down 1.6% at $260.30 per 1000 board feet, and have lost 5.9% since March 14
# US 10-year treasuries rallied (yields declined) giving back some of the recent move higher from 2.38% to trade around 2.29% currently.
# The Bank of England MPC voted unanimously to keep rates on hold at 0.50%, but was split 7:2 on asset purchases. Two members unexpectedly voted for an additional £25 billion in asset purchase.
# UK public borrowing was almost twice the expected amount the data coming in at £15.2b vs. £8b expected.
# Yields on Spanish 10-year bonds rose to a one-month high of 5.40%. Whilst benchmark Italian yields climbed to 5.%, a one-week peak.
Ahead
# North Island surf odyssey – I leave this morning and will be away until Tuesday afternoon, scouring both coasts for the land’s best waves.
# NZ Q4 GDP data
# RBA Assistant Governor DeBelle speaks
# HSBC Flash China Manufacturing Index
# Eurozone Flash Manufacturing PMI’s
# U.K. Retail Sales
# U.S unemployment claims
# ECB President Draghi speaks
# Bernanke speaks again
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 March 20 by Graham Parlane
Overnight
# BHP comments yesterday that they saw Chinese iron ore demand ‘flattening’ kick started a risk off period that saw AUD and NZD fall sharply and global equity markets fall moderately.
# To be filed under the heading ‘it never rains, it pours’ market chatter about unrest and a possible coup in Beijing, whilst later dispelled, didn’t help the overnight tone.
# Fonterra’s Global Dairy Trade milk price auction went horribly, milk prices, which were expected to fall about 1%, fell (were smashed) 4.5%, their fourth straight decline.
# UK inflation data was strong. Consumer prices rose by 0.6% in February versus 0.4% expected , more than reversing January’s 0.5% fall (reducing the odds of further Bank of England quantitative easing and underpinning the GBP/USD).
# Mixed U.S housing data emerged overnight, construction of single-family homes skidded 9.9% in February, the largest drop in a year, while multifamily homes posted a 21% gain. Permits for new construction reached their highest levels in nearly 3 years last months.
# Crude-oil futures dropped 2.3% to $105.61 a barrel, the biggest decline so far this year. Whilst the China story was part of it, expectations Saudi Arabia would act to stem any price rise that could hurt the global economy also figured.
Ahead
# NZ Q4 Current Account
# NZ visitor arrivals
# NZ credit card spending
# UK MPC meeting minutes
# U.S existing home sales
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
USD strength – Was that it?
2012 March 19 by Graham Parlane
The last two weeks have been categorised by a sharp bout of USD strength.
Since U.S. Fed chairman Bernanke’s testimony to congress on the 8th of March, where he made no mention of another money printing program (QE3), the market has had it in their collective minds that the FED is changing course (super easy U.S. monetary policy has been at the very fore-front of FX moves since the GFC).
This is despite the fact that Bernanke, in his Q&A session at the congressional testimony, suggested that growth wasn’t following the improvement in jobs and that there was a ‘fiscal cliff’ approaching in the form of the withdrawal of some very supportive U.S government spending programs later in the year. Indeed in the FOMC meeting of last week, the FED reiterated their stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. Does that comment sound like the FED are about to change course?
So given my view that nothing has changed what can the charts tell us? Well everywhere I look the charts suggest that the USD strength was short term in nature and the bigger trends are reasserting themselves.
Exhibit 1 – NZD/USD weekly chart. A clear bullish hammer here last week with a similarly ill-fated trip south the prior week both suggestive that solid buying interest is present below 0.8180 (no closes lower than that the last two weeks despite dips toward 0.8060). Further the last 3 weeks appear merely ‘corrective’ to the bigger trend up off 0.7300. Note the gorgeous key weekly reversal at the 0.7300 lows!
NZD USD Weekly Chart click to view
Exhibit 2 – NZD/JPY weekly chart. Arguably the NZD/JPY is the ultimate arbiter of ‘risk’ and this chart is even more impressive. A fierce pullback on Bernanke testimony that was very short lived creating a very significant ‘hammer’ rejection followed by a seeming confirmation move higher last week.
NZD JPY Weekly Chart click to view
Exhibit 3 – The Dow Jones Index. The share market does not look concerned about higher interest rates anytime soon as it surges to new 4 ½ year highs.
The Dow Jones Index Chart click to view
In summation the 3 charts shown suggest strongly to me that the focus on a FED change these last two weeks is ill-considered and the broader conditions that have been in play for so long are now reasserting themselves.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 March 19 by Graham Parlane
Yesterday/Overnight
# Westpac NZ consumer confidence index rose from 101.3 to 102.4 in Q1, in addition the Performance of Services Index confirmed last week’s PMI, moving up from 53.6 to 55.5 in February.
# Talk that Greek Credit Default Swaps (CDS) insurance contracts had successfully been settled underpinned the EUR/USD. The EUR was the star performer overnight rallying from 1.3160 to 1.3240
# Apple Inc. initiated a dividend payment suggesting ‘corporate US’ is building in confidence. Interestingly, this now allows many more investment funds to invest in the company due to internal dividend paying rules for funds. i.e. many funds can only invest in dividend paying co’s. Apple had its highest close ever, finishing at US$601.10
# U.S. home builders’ confidence in the housing market held steady in March at the highest level in nearly five years
# New York Fed President William Dudley, considered one of its core members, stressed that the U.S. economy isn’t yet out of the woods, but also acknowledged some of the better economic readings of late.
# Benchmark U.S 10 year treasuries continued their sell off (yields higher) finishing the session at 2.37%
Ahead
# RBA monetary policy meeting minutes
# U.K. inflation data
# U.S. housing starts
# FED governor Bernanke speaks (again)
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities