Originally published by AxiTrader
THE AUSTRALIAN DOLLAR
The Aussie dollar retook 74 cents on Friday night and it’s just hovering near there at 0.7403 in very early forex trade as it outperformed both the euro and yuan against the US dollar. My sense is part of this was the relative performance of mining and metals shares to the rest of the market and the solid hold of Australia’s CESI score at 32.5 – the highest of the big CESI scores – suggests that despite low inflation thee are still reasons to support the Aussie dollar. For the moment anyway while the US dollar is struggling.
Of these it is the very subtle turn in the relative performance of metals and mining shares versus the total MSCI World Index, which for me is a core driver of the Aussie dollar's outperformance to the euro this morning.
The fall in tech last week has altered perceptions of the outlook for some of the generals who have led this market advance and as such can change notions of relative value. In the short term at least. And if real money does flow toward metals and mining shares it's also likely to flow toward commodities. And if that is the case then the Aussie can be supported for a little while.
That’s especially the case given the shorts are carrying a heavy position at the moment.
Time and the data will tell.
This week we have the BoJ, Fed, and Bank of England, none of which are ostensibly Aussie dollar related but each can have an impact in overall forex settings which will impact the Aussie dollar. And then of course we get Australian trade and retail sales data late this week right before the release of non-farm payrolls.
For the moment though the Aussie’s moves are consolidations within an overall downtrend. But while 0.7350 can hold, the Aussie has a chance to best the 0.7450/60 zone and maybe run higher. But downtrends persist.
Here's the weekly chart
ASX INDEXES
DOUBLE TOP!!!
That’s what the SPI 200 looks like this morning after a failure on Friday to take out the previous range high. As I’ve highlighted in the Aussie dollar section above the chances are that if the metals and mining shares are catching a little relative value bid that the ASX might benefit.
But the reality is technical have been the best guide to this market over recent months and on that front, I’m going to trust the failure at the range top and suggest another test toward the 6,145 support zone in SPI terms is on the cards. 6,205 is first support on the day.
Certainly moves in US markets suggest that's where things might head.
A LITTLE ON THE ECONOMY
This is an interesting and important week of data for Australian eco watchers like myself.
The manufacturing and services PMI's will give us a good feel for where business is as we enter August while trade and retail sales will also be important inputs into how the economy is tracking.
Of most interest to me is retail trade on Friday. It's a June number, so it's a little dated but my sense is that the strength of employment and still solid business conditions should support retail spending. That's certainly the feed I get when I look at other surveys and the improvement in retail sales over the previous two months.
Yet with house prices still falling and some folks getting nervous, this could accelerate to the downside I wonder what impact this will have on households. What I'm particularly fascinated about is whether the fall in house prices, and so improved affordability, actually has a positive impact on some parts of the community - maybe I'm behaviourally overthinking it. I don't know. But it is something I'm watching.
DATA:
On the day it’s quiet here at home. Retail sales are out in Japan, consumer credit (debt) is out in the UK along with mortgage lending data. In Europe we get Euro area data for business and consumer confidence and sentiment along with inflation expectations before German inflation data for July. Pending home sales and the Dallas Fed manufacturing index is out in the US.
Have a great day's trading.