Gold has gone a bit mental after the recent break higher proved a false one and the sell-off got steep today as the USD and JPY rallied – a combination that suggests the QE theme has weakened again.
Very little in the way of compelling news flow today, though the tone has shifted on the fiscal cliff negotiations in the US as no progress has been reported. As well, the markets have been busy reversing the moves that took place in thin trading late last week during the US holiday break, which suggests they were built on a bit of thin air.
One of the more notable moves in key market barometers was the price of gold, which violently reversed back lower through 1740 after taking out that level last week and progressing even above the psychologically significant 1750 mark. It now stands at 1715 as of this writing – and suggests that the QE theme is weakening a bit – certainly fits well with a rally in the USD and JPY today.
EUR/USD was down for the second day in a row, but there is still some room until the most important levels are reached down at 1.2800, so it will be some time before we see if this is merely a consolidation or whether the bears will continue to gain traction. The story is one of range trading between the bullish trigger of 1.30+ and the bearish trigger below 1.2800. Spanish spreads continue to suggest that tail risk is plummeting – but the euro isn’t responding to that – an interesting divergence I’ll keep my eye on.
Looking ahead
Look out for US New Home Sales out shortly – the news media are all worked up about the US housing “Resurgence,” which is more a sign of normalization from unheard of low levels and new homes selling more readily than existing homes because so many homeowners are upside down on their mortgages and “trapped” underwater and because banks are slow to release their repossessed inventory to avoid depressing prices. So buyers are finding it easier to select or build new homes.
The SNB’s Jordan is also out speaking a little later at 1715 GMT on monetary policy. Could be nothing, or could be something – but worth paying attention to. Also watch out for the US Fed’s Beige Book a bit later.
Another news item crossing our screen just before we are posting is that SAC capital, the legendary hedge fund, has receive a “Well’s Notice” from the SEC, which is basically a warning that it is planning to bring an enforcement action against the hedge fund. This could mean liquidation of some risk as this is one of the most influential hedge funds in recent years at the centre of sharp practices at best and sleazy insider trading at worst. Equities have been in a 3-4% range for two months now in Europe as this market seems intent on lulling us all to sleep with ever slower volatility.
The low volatility will always prove a red herring eventually – but when does eventually come to an end – 1 December, 1 January or 2015? Something tells me this market is going to remain a difficult one for a while – AUD/USD moving today like molasses on an Alaskan winter hillside despite ugly risk moves and gold dumping viciously sits very wrong with me – this market is a very confusing spectacle at the moment – let’s hope better visibility is available soon.
Economic Data Highlights
- Germany Nov. CPI out at -0.1% MoM and +1.9% YoY as expected and vs. +2.0% YoY in Oct.
- Germany Nov. Core CPI out at -0.1% MoM and +2.0% YoY as expected and vs. +2.0% YoY in Oct.
- US Oct. New Home Sales (1500)
- US Weekly DoE Crude Oil and Product Inventories (1530)
- Switzerland SNB’s Jordan to Speak (1715)
- US Fed’s Beige Book (1900)
- Japan Oct. Retail Trade (2350)
- Australia Oct. HIA New Home Sales (0000)
- New Zealand Nov. ANZ Business Confidence (0000)
- Japan BoJ’s Shirai to Speak (0130)