US Dollar strengthens amid stocks rally – But markets remain on tenterhooks

Last week’s saw tooth pattern was a worry to me as much as the bg ranges we are starting to see in USDJPY and the weakness in AUDUSD. It all looks a bit wobbly to me.

Of course regular readers know I have held the “stability leads to instability” view for a while now. But it looks like my theory could be gaining currency as the market heads toward the start of October – the month when the Fed will end its unconventional quantitative easing program.

Indeed, noted US fund manager John Hussman has issued a note this morning titled “The Ingredients of a Market Crash” which highlights the breakdown of what he calls “trend uniformity” – I have covered it at Business insider but he is very bearish.

One thing he notes which I also agree with is that these things can take time to develop and I would agree wholeheartedly.

Readers who have been with me for some time will remember that I call the crash in gold within the 6 month window in which it dropped and stocks are at a similar juncture. The monthlies look like they are topping, the weeklies have topped and are seeing an expansion in the ranges – megaphone anyone?

So it means that there is going to be a lot of screen-watching this week after what was a positive end to a poor week’s trade on global stock markets. On Friday, US markets clawed back some of the losses with a rally of 167 points or 0.99% on the Dow, 1.01% on the Nasdaq, while the S&P 500 was 17 points higher at 1,983 for a gain of 0.87%. On the week though, the indices were lower with the Dow down 1%, the S&P off 1.4% and the Nasdaq losing 1.5%. The sawtooth pattern looks like a warning to me.

Anyway, positive US trade led to positive European trade with the FTSE up 0.14%, the CAC up 0.91% but the DAX down 0.21%.

Locally, the trendline we highlighted on Friday proved solid for futures traders during the day and prices climbed a little further on Friday night with the December futures up 9 points to 5,312. Traders will be titchy again, but overall it’s the direction of the S&P and Dow which will ultimately drive global and Australian sentiment.

So you know what I think and this chart suggests.

In Asia Friday, Shanghai was up slightly to 2,348 but the Hang Seng fell 0.38% and the Nikkei was under a little pressure again, down 0.88% to 16,230. Without anything decent by way of data today, the overall tone from the US should help Asian markets but there is also going to be a lot of focus on the student protests in Hong Kong which may pressure the Hang Seng and maybe even Shanghai a little.

On Forex markets, the US dollar was stronger across the board and the Aussie dollar’s woes continued in early Asia today. It’s trading down at 0.8756 – Friday’s lows. The yen is also weaker at 109.32 while euro at 1,2681 looks very sick. Sterling sits at 1.6239. The outlook on the week for Forex is more dependent than usual on stocks – a rally will push the USDJPY higher and pressure the Aussie but should stocks head lower, the yen should rally. Either way, the Aussie looks pressured.

On Commodity markets, it was better night for iron ore which rallied 71 cents a tonne for December delivery. Newcastle coal was unchanged for December at $66.10 a tonne while Nymex crude rose 0.9% to $93.36. Copper was unchanged at $3.03 a pound and gold remains becalmed at $1,219 and ounce with silver at $17.64. On the Ags, wheat was flat – yes, flat! Corn fell 0.86% and soybeans dipped 0.49%.

On the data front today, there is little in our time zone before EU business and consumer confidence and climate data tonight. In the US, personal income data is important but most of the key data is released later this week.

Greg McKenna

NB: Please note all references to rates above are approximate

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