There are some really interesting set ups in the market after the price action of the past 24 hours so this will be a chart heavy post this morning but before we dive into how the charts are set up in many markets let me just say that the moves by the Cypriot government to re-evaluate the depositor tax to look after the smaller depositors a little better perhaps even entirely is a welcome move. Equally while we could view the EU stance that they don’t care how Cyprus gets the cash as long as they get the cash, implying it is OK to tax Russians more if that’s what the Cypriots want to do, as pretty weak at least they have given Cyprus some wriggle room.
Overnight there was no evidence that there bank runs in Spain or Italy and markets have clearly taken on board the size of Cyprus relative to Europe and the globe as something to focus on rather than the longer term potential human and behavioural costs that worry us here given that is our bent an a key driver in our trading approach. But longer term issues matter and I am reminded of a time when studying for my Master of Applied Finance in 2002 when we were addressed by a senior investment banker who said that while the human cost of the September 11 attacks was appalling and the changes this would bring to international travel were going to be long lasting the size of the market sell off relative to the economic impact meant the sell off was a chance to buy. Perhaps it was the consequences have been very long term and costly.
We continue to view the approach taken by the Troika and the bully boy approach to a tiny nation as having longer term impacts on European politics and its banking system – remember anyone now is fair game for the Troika in bailouts and if that is the case populations might want to bolster their position by putting nationalists in Parliament who will defend their interests more aggressively. But for the moment markets aren’t overly concerned and this is probably right at present as our Investment Banker pointed out back in 2002.
This view held then seems also to have permeated markets overnight and if we quickly go around the grounds we see that European stocks were off their lows but still closed in the red. The DAX fell 0.40%, the FTSE 0.49%, the CAC 0.50% while in Italy stocks were down 0.85% and in Spain stocks were 1.29% lower.
In the US at the close the US stock market is off its lows but swooned late in the day. The Dow is down 0.43% to 14,452, the Nasdaq is off 0.34% and the S&P 500 has dropped 0.56% to 1552.
Now to the charts:
Check out the candlesticks on these babies…big drop but very positive rallies everywhere. the question is whether this is just Gary Gap Filler or they are heading lower.
Global FX
If Euro can stay above 1.2850 which is both the bottom of the Bolly Band and also the 200 day moving average then there is a set up for a decent rally coming – but it is a rally I want to happen so I can sell into it because the EURUSD downtrend is firmly in place.
USDJPY like Euro had a big fall but then rallied hard. As you can see here there is a trend line support coming in just below the market at 93.14 which although it seems a long way away is less than 2 times the ATR of 115 points a day from spot. A break of this level is huge as it would take out both our moving averages and the trend and signal a deeper retracement. remember though we always respect trends until they break.
I saw something on Twitter saying that one of the Big IB’s, perhaps Morgan Stanley had revised their year end target for GBPUSD to 1.43 from the 1.50′s. As readers know we believe that GBP is headed toward 1.42 but like Heisenberg suggested we can’t know both the level and the time so year end before or after, who knows. As you can see in the chart above though GBP couldn’t get through the 23.6% retracement and while the MACD would suggest a period of strength coming the downtrend persists. This is a sell on rallies market.
The Aussie chart is very interesting three up days but oh so different. The break out after the employment data Thursday, the continuation as the US dollar weakened last Friday and then a very strong recovery from the gap lower yesterday. This looks bullish from where we sit and the 1.0512 target remains in place.
Stocks
The Nikkei is still holding above the key support zone. A breach would signal a deeper move and perhaps be a sign that USDJPY is on the move lower as well.
The Australian market pulled up right on important support as you can see and while it looks like this market is turning only a break of this trend line would signal a deeper move.
Turning to the bellwether global equity market of the S&P it is at a very interesting point. Last night saw it break our fast moving average, have a low on the middle of the Bolly Bands and have a set up which suggests that it is going to at least test the slow moving average that sits at 1524. A break of this level is a sign that the S&P and perhaps equity markets everywhere are headed lower.
Gold looks like it is going to rally from here. While it didn’t exactly go ballistic after the Cyprus thing yesterday and indeed spent most of the Asian day back below $1600 it’s test of the slow moving average and the set up when we look at our usual indicators suggests that it is going substantially higher. Of course if the S&P breaks lower and or the Euro’s trend also bust then we’ll get a big move.
There are a lot of potential big moves coming so watch your levels.
Data
A couple of interesting speeches from RBA gurus today. Guy Debelle the Assistant Governor (Financial Markets) is talking on Some Recent (And Not So Recent) Trends in Australian Debt Markets while Philip Lowe the Deputy Governor is talking on Internal Balance, Structural Change and Monetary Policy. Might be something in either of those for us wonks today 
Of course the RBA Minutes are also out and Chinese FDI and Leading Index will be important as well. Also out is the ZEW survey in Germany
Thoughts, comments, queries together with frank and fearless feedbackall welcome. I’m happy to answer questions or comments on the comment stream wherever I can.
NB: Please note all references to rates above are approximate and should not be used for trade reference.