Trading across all asset classes has been subdued in Asia today with a holiday in Tokyo and ahead of Thanksgiving in the United States.
The market continues to catch its breath after an exciting two weeks with only AUD/USD showing signs of life in Asia trading today. AUD was buoyed by more frenzied buying of Iron Ore Futures in China with the Dalian Iron Ore contract finishing the day 4.5% yup! This dragged AUD through resistance at 7400 and up 50 points to 7450. As the chart shows though AUD remains a long way from trendline resistance at 7615 and also has the 100 and 200-day moving averages at 7589 and 7520 respectively, so plenty of wood to chop technically.
AUD/JPY buying was around as well reflecting traders appetite for anything “risk on” at the moment. With USD/JPY regaining the 111.00 handle the cross is now attacking a multiple daily top and resistance at 82.55. A Daily close above this level suggesting a move is possible to above 84.00.
BUNDS
German 2-Year yields hit a record low today of -0.74 %.
GERMANY’S TWO-YEAR GOVERNMENT BOND YIELD HITS RECORD LOW OF MINUS 0.74 PERCENT – TRADEWEB
The U.S. 10-Year vs German 10-Year spread hit a record high of +206 points overnight. The 10 year Bund has traded higher in price terms (ie yield lower) after the recent global bond sell-off. There a couple of factors at work here that may well keep Bund yields low or tracking lower. One, the ECB will almost certainly extend their QE programme for at least another 6 months. Two, storm clouds are gathering in Europe with the Italian referendum on December 4th and a number of Federal Elections in Europe next year.
This could see a rotation out of peripheral and Club Med countries bonds and into quality German made Bunds. The safe haven status of Bunds within Europe could see spreads with the periphery blowing out going forwards.
No such problems with German stocks though. Following Wall Street’s lead and with yields going lower again, the DAX is re-testing a multiple daily high at 10792.
Ditto the ASX, getting a sugar rush from both Wall Street and booming commodity prices on China’s futures exchanges. Like the DAX, it is testing a multi-day high here at 5495 as Australias resource heavy index basks in an iron ore afterglow.
This is an interesting chart. Maybe there is life in GBP yet and the post-Brexit meltdown is fading? Or perhaps it is that EUR in 2017 will become the much larger of two evils. The 100-day moving average has held multiple times on top and is now formidable resistance at 8632. EUR/GBP is approaching trendline support at 8445.
As we head into the mass extinction event of turkeys we know as Thanks Giving, there is clearly still an appetite, albeit subdued, for risk on trades. Be it via high yielders or commodities. I am still pondering how Equities in general, can continue to be so bullish in the face of higher US bond yields but as the saying goes, “the market can stay irrational, longer than you can stay solvent.”