AUD/USD jumped 40 pips on the soft US inflation data and hit a session high of 0.9422 but virtually all the gains have now been erased and it’s trading back at 0.9388.
There is some demand ahead of the pre-CPI low of 0.9380 then more bids at session low/55-dma at 0.9356. More at 0.9350 and 0.9340 so it will be tough going on the downside.
Stevens was out with a speech earlier but didn’t really touch on the Australian dollar. The key will be the inflation report in the day ahead. The market sees a slim chance of a rate cut over the next year but soft inflation combined with continue weak employment data could eventually mean cuts.
The S&P 500 is up 12 points and has broken the July 7 all-time high of 1985.59. Low inflation and decent economic data is the perfect combination for stock markets.
Get the glasses ready!
1.7042 is as far as we’ve come so far and 7 pips short of the spike low on Friday.
We’re also having another look below the Oct 2013 support line
GBP/USD Daily chart 22 07 2014
A fall through support here would see the 1.70 level come into focus which also marks the 38.2 fib of the May swing up. Under that the 50 fib also coincides with the 55 dma and the 100 mma at 1.6935
We’re slowly creeping further and further away from the recent highs and although there is some dollar moves behind it I wouldn’t get complacent that were done at the highs. Retail sales and GDP later in the week may not cause us to stray too far.
Highlights of the June US existing home sales report:
- Fresh high since Oct 2013
- Prior was 4.89M (revised to 4.91M)
- Sales up 2.6% in the month vs 1.9% exp
Some good news on housing but there is still so much work to be done.
existing home sales
The hope is that rising existing home sales will translate into demand for new homes and help to stimulate the economy but the trend modest, at best.
- Prior 3
- New orders 5 unch
- Shipments 3 vs 2 prior
- Employment 13 vs 4 prior
- Wages 16 vs 12 prior
- Prices paid 1.99 vs 1.47 prior
- Prices received 0.99 vs 0.66 prior
- Finished good inventories 12 vs 8 prior
- Raw material inventories 21 vs 14 prior
Another pick up in another regional report and some price increases noted as well as a jump in labour numbers.
US Richmond Fed manufacturing index details 22 07 2014
US Richmond Fed manufacturing index 22 07 2014
They also released some services data with the main index rising to 12 from 9 in June. Revenues were also up to 12 from 6 prior with growth in wage, employment and inventories too.
US Richmond Fed services index 22 07 2014
68 days ago Socgen were worried that we hadn’t had a 10% correction in the S&P for 468 days.
RBC’s chief US market strategist says it’s been 1020 days since the last one back in 2011.
Someone is fiddling the numbers to fit the cause.
Either way it’s been a long time since we’ve seen any meaningful correction but we are potentially facing the same scenario we encountered back in March and April when we were banging our heads against the 1880/85 level. Funnily enough it’s the 80/85 number that we’re banging our heads on again.
S&P daily chart 22 07 2014
Obviously we shouldn’t expect one pattern to follow another directly but the defense of the big figures has been obvious for the last couple of hundred ticks. Before the break through 1900 we consolidated before trying an attempt which failed resulting in a 4.37% correction.
With 2000 big a hugely psychological level we should pay close attention to price action on an attempt as this could provide a good opportunity to go short just ahead of a test and catch the rejection, and then have the opportunity to get it on a decent dip.
As always, judge any moves on its merits at the time.
In the here and now the S&P has opened up 8 points to 1981 with the Dow +38 to 17090. The Nasdaq is green by 26 at 4451 and you can get 2.47% on 10 year US of A bonds +half a bp, though we have been up through 2.50%
The S&P 500 is up 7 points to 1980. The July record high was 1985.59, if that breaks then a test of 2000 is virtually a sure thing.
Earnings will continue to manufactured via buybacks, debt and tax avoidance (which is the topic of Senate hearings today)
The thing about Yellen is that she wants to hold rates as low as possible. In one sense, there is nothing wrong with that, inflation is clearly not a problem given today’s numbers and even a short spell of above-target inflation would help wages rebalance.
What leaves traders uneasy is that Yellen seems to see a formulaic picture. She’s cast aside worries about the side-effects of a $4 trillion balance sheet and is focused on the data. For most of us, a small cycle of rate hikes — perhaps to 1.00% — wouldn’t cripple the US economy but it would help to reign in liquidity and some excesses. At least we could see where the economy stands without a Fed crutch.
But with every low inflation number Yellen can bury her head a bit deeper in the sand and 10-year yields can fall further. The low today was 2.45%, why not lower? German 10s trade at 1.15%, Japan is at 0.54% and even Canada — where overnight rates are 1.00%, no QE and scarcely a deficit — the 10-year note yields only 2.13%.
There is talk that US Treasuries will continue to rally with chatter about 2.15% as a target. Yields that low would almost-surely cut down USD/JPY. The pair is near the lows of the year and bounces are increasingly shallow.
- Prior 0.0%. Revised to 0.1%
- 5.5% vs 5.9% prior y/y
Bit of a delay from the FHFA there but we got there in the end.
The index is 6.5% below the April 2007 peak
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