News headlines over the weekend helped put pressure on the Euro during the Asian session as newspapers in Greece reported that the Private Sector involvement program (PSI) are meeting internal problems politically, which is leading the IMF to call for new debt restructuring strategies and increase in the agreed-upon loss levels that will be shouldered by current holders of Greek bonds (potentially as high as 80 percent in losses).
The Euro was broadly lower to start the week (especially against the Japanese Yen) but the US Dollar was also being bought after comments from Federal Reserve member Bullard who said that the Fed’s previous QE strategies had been a success (preventing a potentially deflationary environment), and that a third round of quantitative easing will not be necessary. The US Dollar index is now at its highest levels since the third quarter of 2010.
Macro data came out of China over the weekend, with loan applications, new home sales and money supply figures being released. Both pieces of data showed that the central bank is attempting to make monetary conditions more accommodative (new Yuan loans rose to 640.5 billion for December from 562.2 billion in November), which was better than the consensus estimate. M2 money supply increased by 13.6 percent on a yearly basis, which is a nearly 1 percent rise from the previous month. The bigger story, however, was the new home sales report, which showed that housing prices in Beijing dropped a massive 60 percent on a yearly basis. Transactional volumes were seen at their lowest levels in a decade, so the data shows that the often-discussed “housing bubble” seen in China is coming to an end.
On balance, the weekend information was risk negative and equity markets we also dragged lower (reversing off of recent highs). Asian stock markets were all trading negative (with the exception of the Shanghai composite index) after the release of lower monthly retail sales figures out of Australia. The Aussie data came in unchanged (against expectations of a 0.4 percent rise) and lower than what was seen in the previous month. There is still some possibility for optimism, however, as this data does not reflect purchases made during the weeks leading up to Christmas.
The main story from Friday was the US Non Farm payrolls release, which were very strong, coming in at a rise of 200,000 (versus 155,000 expected), with most of the increases coming from the private sector. The unemployment rate was seen at 8.5 percent but some analysts have suggested this is mostly the result of declines in the participation rate. The US Dollar closed the week higher after the releases.
The AUD/USD is breaking some critical resistance levels in the longer term picture, with prices clearing the 61.8% Fibonacci resistance at 1.0330. This is encouraging for the expectation within the symmetrical triangle on the dailies, so we expect a test of at least the downtrend line before seeing any major losses. A break of 1.0080 turns the short term bias back to neutral.
The S&P 500 is continuing to trade at elevated levels with resistance at 1285 seen as the next major hurdle. The MACD reading is bullish and the consistently higher highs are suggestive of an upside break rather than a failure. Aggressive players can use this as an opportunity for shorts but stops should be kept tight as a break here will accelerate gains.