Australian Dollar

The store of wealth demand is not just from Chinese ‘aunties.’ There remains an under estimation of the demand coming from wealthy Chinese and high net worth and ultra high net worth individuals (HNWs and UHNWs). 

This has not been commented upon or analysed but we have direct experience of wealthy Chinese people looking to store gold in Hong Kong and Switzerland, as have other storage providers.

All traders walking in today, have just one question in their minds: "will today be lucky 21?" or the 21st consecutive Tuesday in which the Dow Jones has closed green.

All else is irrelevant.

Here is what is shaping the global capital markets.

Outlook for the dollar and major foreign currencies in the week ahead.

This morning market participants turn on their trading terminals to see an unfamiliar shade of green: red.

Following yesterday's blow out in US bond yields, which have continued to leak wider and are now at 2.20% after touching 2.23%,  the overnight Japanese trading session was relatively tame, with the 10Y JGB closing just modestly wider at 0.93%, following the market stabilization due to a substantial JPY1 trillion JOMO operation which also meant barely any change to the NKY225, while the USDJPY slipped in overnight trading below the 102 support line and was trading in the mid 101s as of this moment, pulling all risk classes lower with it. There was no immediate catalyst for the sharp slide around 3am Eastern, although there was the usual plethora of weak economic data.

Price action in the foreign exchange market.  Discuss.

Central bankers overshadow the economic data in the week ahead.  

A look mostly at prices in the currency market and the outlook.   

Those hoping for a slew of negative news to push stocks much higher today will be disappointed in this largely catalyst-free day. So far today we have gotten only the ECB's weekly 3y LTRO announcement whereby seven banks will repay a total of €1.1 billion from both LTRO issues, as repayments slow to a trickle because the last thing the ECB, which was rumored to be inquiring banks if they can handle negative deposit rates earlier in the session, needs is even more balance sheet contraction. The biggest economic European economic data point was the EU construction output which contracted for a fifth consecutive month, dropping -1.7% compared to -0.3% previously, and tumbled 7.9% from a year before.  Elsewhere, Spain announced trade data for March, which printed at yet another surplus of €0.63 billion, prompted not so much by soaring exports which rose a tiny 2% from a year ago to €20.3 billion but due to a collapse in imports of 15% to €19.7 billion - a further sign that the Spanish economy is truly contracting even if the ultimate accounting entry will be GDP positive. More importantly for Spain, the country reported a March bad loan ratio - which has been persistently underreproted - at 10.5% up from 10.4% in February. We will have more to say on why this is the latest and greatest ticking timebomb for the Eurozone shortly.

The dollar rallied in the second half of last week, but looks set to consolidate first before extending the rally.  The yen was not the weakest major currency.  That dubious honor goes to the Australian dollar.  

The yen is weak AND the dollar is strong. Two forces at work. Discuss.

When three hedge fund titans all explain in words so simple a financial media channel morning show host can grasp that there is nothing behind this rally but smoke, mirrors, and a bearded academic, it seems more than a few people start to pay attention. Following Paul Singer and Kyle Bass, Stanley Druckenmiller "loves the market short-term, but hates it long-term," since Bernanke is "running the most inappropriate monetary policy in history." He warns, for it is a warning, that "markets will melt up," until the Fed is forced to tighten. He recommends shorting the AUD, and sees the commodity super-cycle as over, because, "supply-demand... is deadly." He also likes Google but not "tech companies that engage in financial engineering under advice of hedge fund managers."

The euro continues to not get the memo. After days and days of attempted jawboning by Draghi and his marry FX trading men, doing all they can to push the euro down, cutting interest rates and even threatening to use the nuclear option and push the deposit rate into the red, someone continues to buy EURs (coughjapancough) or, worse, generate major short squeezes such as during today's event deficient trading session, when after France reported a miss in both its manufacturing and industrial production numbers (-1.0% and -0.9%, on expectations of -0.5% and -0.3%, from priors of 0.8% and 0.7%) did absolutely nothing for the EUR pairs, it was up to Germany to put an end to the party, and announce March factory orders which beat expectations of a -0.5% solidly, and remained unchanged at 2.2%, the same as in February. And since the current regime is one in which Germany is happy and beggaring its neighbors's exports (France) with a stronger EUR, Merkel will be delighted with the outcome while all other European exporters will once again come back to Draghi and demand more jawboning, which they will certainly get. Expect more headlines out of the ECB cautioning that the EUR is still too high.

An overview of this week's drivers.

A look at the price action in the foreign exchange market and the technical forces in the week ahead.