Australian Dollar down as production takes a pause

March 23, 2012


Not a great night if you are bullish on stocks, commodities and commodity currencies which were off a tad on the back of the flash Chinese PMI and then put under more pressure from similar indexes in Europe.

On the markets Bloomberg reported,

March 22 (Bloomberg) — Stocks and commodities dropped while Treasuries rose for a third day after European and Chinese manufacturing contracted and FedEx Corp. predicted slower growth, undermining confidence in the global economy.
The Standard & Poor’s 500 Index slipped 0.7 percent, the most in two weeks, to 1,392.79 at 4 p.m. in New York and the Stoxx Europe 600 Index fell for a fourth straight day, tumbling 1.2 percent. The euro depreciated 0.2 percent to $1.3188. Ten- year Treasury yields declined two basis points to 2.28 percent and the rate on the German bund decreased seven basis points to 1.91 percent. Copper and oil sank at least 1.8 percent and nickel slid to the lowest price this year.

While on the PMI’s Bloomberg said,

A gauge of European manufacturing fell to 47.7 as factory output unexpectedly shrank in Germany and France, according to London-based Markit Economics. A preliminary measure of Chinese manufacturing slipped to 48.1 in March, the lowest level in four months, based on figures from HSBC Holdings Plc and Markit Economics. FedEx, operator of the world’s largest cargo airline, predicted “below-trend” growth in coming quarters.

“Most people recognize that China growth has slowed,” said Mark Bronzo, who helps manage about $125 billion at Guggenheim Investments, in Irvington, New York. “It’s a question of: is it going to be a sharp or a mild slowdown? The data in Europe shouldn’t be a big surprise to anyone. Yet there’s enough of a reason there after the sharp run-up in stocks for the market to pull back or go sideways in the short term.”

It’s the quote from Mark Bronzo which summaries why markets sold off but didn’t crash overnight.

There is enough disquiet to lighten positions and maybe a bit of new selling from some but as a reader highlighted to me yesterday they aren’t particularly troubled by a slowdown in the rate of growth in China which is very different to a “slowdown” in China.

It’s an important distinction to make economically – one no doubt that the RBA would point out. But from a market point of view it tends to be more about expectations than actual results. Hence why the Euro can still sit atop 1.30 to the US Dollar even with their economic malaise.

For the Australian Dollar though the Chinese news hit it with an axe and then the European data hit it again driving it to a low of 1.0330ish. I’m on the road and doing this from my iPhone so I can’t draw the normal lines on the next chart but you can see the green line which is the 200 day moving average has given way and the Aussie is now on the wrong side of support – just.


So what now?

First thing to say I’d another of my technical systems is now short after yesterday’s move – it has a big stop but a small position and thus capital at risk. We’ll see how it goes.

Subjectively I’m looking for the price action into this weeks close before I’d get to bearish but I think the easy money for the equity, commodity, commodity currency trades has been made and we are now entering a period where we need to find support.

That suggests a bit more if a pullback over the next week or so.

Have a great day and I’ll update Monday.

Gregory McKenna

Sent from my iPhone

Remember usual disclaimer folks. This is not advice, I have not taken your personal circumstances into account and you don’t have my stops or money management tools.

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