Morning Fundamentals: Investors Risk Averse

The slowing of the world's second largest economy, China, was the major point of concern for investors last week. Both gold and copper entered into a bear market last week with copper prices plunging more than 5% while gold closed the week 7% lower. Furthermore, speculation that the Federal Reserve might reduce or end stimulus early and slowing growth in earnings in the U.S. corporate sector also added to the risk aversion. China's GDP grew at a rate of 7.7% in the first quarter, compared to a year earlier, and lower than expectations of an 8% gain from analysts. Also, industrial production rose less than expected. The Australian dollar was one of the biggest losers over the past week falling to trade below 1.0300.

In response to the latest growth figures out of China, the Governor of the People's Bank of China, Zhou Xiaochuan said that the economic expansion rate in the first quarter is normal and that China may have to sacrifice growth to implement structural reforms. Zhou made the comments outside a meeting of the International Monetary Fund in Washington. Meanwhile, the Group of 20 nations o Friday have shifted their focus away from government austerity and rejected the setting of hard targets of debt reduction in favour of policies aimed at growth. However, the G20 also made it clear that it would keep an eye on the effects of monetary stimulus, a statement clearly aimed at the policies of Japa-nese Prime Minister Shinzo Abe. In any case, the Yen has weakened this morning and looks likely to test 100 against the U.S. Dollar.

U.S. equity markets recorded their worst weekly performance this year with the S&P 500 losing 2.1% over the week. The index did manage to gain on the final session, closing 0.88% higher at 1,555.25. Apple shares plunged 9.1% after one of its key suppliers announced an oversupply of inventory. The VIX volatility index surged 24% over the week to record the biggest gain since December. Earlier in Europe, bourses closed the session mostly higher. However, the DAX managed a lose of 0.18% while the EURO STOXX 50 rose 0.77%.

EUR/USD was choppy over the final trading day of the week with markets getting heaps of rumours from all the international meetings taking place over Friday and the weekend. Some of the comments were the approval from the G20 about the stance that Japan is taking to improve their inflation and talk that some ECB members still believe in the easing official interest rates to improve the economy climate in Europe. Like most of the majors the Euro was finding buyers outweighing the sellers with the momentum continuing into the European session. Only offers at 1.3100 capped during the European session before a mixed US open lead to the price spiking to 1.3126. However, with equity markets all over the place and the chatter in Europe, the price crashed back to 1.3055 to close out the week. Little data overt the next 24 hours should help momentum as we see the price continuing some of this bearish tone. However, look for a possible shift at the European open.

Compass Direction
Short-Term Medium-Term

EUR/USD" title="EUR/USD" width="996" height="579">
AUD/USD lifted during the middle of the Asia session as the markets got wind that the G20 meeting was happy with the actions that the BoJ are taking to stimulate their economy. As the price seemed to be finding plenty of support the lift caught out some weak shorts and squeezed to a European opening level of 1.0355. The momentum rush looked a little steep for a Friday with little to no data and loads of international meetings to take place. As quick as the rise is the fall with the price rolling off as the markets got another bit of chatter from ECB that are still looking for a cut to interest rates in the near future. The bearish shift in momentum has the AUD closing the week offered at 1.0271. With the negative lead into the weekend and little to no data for almost all of the sessions today its hard to see the AUD returning to 1.0350 again. We will be looking for spot traders to test the support at 1.0250 as a break will likely see the price head towards the mid 1.01’s. Expected range 1.0180/1.0330.
Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH

AUD/USD" title="AUD/USD" width="998" height="597">