Global equities moderately weaker, US dollar weaker, all eyes on US CPI tonight - ASX futures down 2 points

Australia's ASX 200 snubbed a positive lead yesterday and just didn't manage to fire up all morning. We jumped out of the blocks and hit a high of 5,995 before diving to lows of 5,951 and then closing bearishly into the closing rotation. You can see by looking at today's first chart that the ASX 200 index took a nosedive into the 4:10pm auction, which was likely driven by the unwinding of long trades that were placed in anticipation of a strong day but were never rewarded. It is often the case that risk-takers (such as proprietary desks at investment banks and CFD market makers) will manage their exposures on a discretionary basis, but the traders may not have permission to hold past the close, so it is not uncommon to see the market punctuate a move like this after a disappointing day. 

The US dollar index continued to pull back last night and that means that just about everything that faces off with the US dollar rose last night. Today's second chart shows the US dollar index (black) dropping at the expense of the EURUSD (orange). I say 'expense' because European markets were enjoying the double-whammy of trend euro weakness as well as the commencement of 60 billion euro per month in ECB quantitative easing. At one point last night the AUDUSD (third chart) touched US$0.7896 and at a brief glance one could speculate that at least a small part of the pricing in of the 2015 Fed rate hike is being unwound. Now I certainly don't want to make a big deal out of this because as the US dollar index shows, the recent pull back has not even retraced the month-to-date strength yet, and nothing ever trends in a straight line forever - it was due to back off. Expect any further US dollar weakening (and subsequent euro strength) to be a temporary headwind for European equities.

The US dollar weakness is allowing US dollar spot gold (last chart) to have a decent run and will have rewarded traders who used the recent buying support at around US$1,140 as a launch pad for long bets. As I've mentioned previously, the US economy (in its green shoot recovery phase) can't just sit back and watch the euro depreciate at the expense of US export competitiveness, and I wonder whether the market is waking up to this or whether the sell-off over the last few days is a blip on the radar.

Traders should watch for US CPI data, which will print at 11:30pm tonight, Sydney time. Core inflation is expected to rise slightly from 1.6% to 1.7% year on year, and headline is expected to remain at -0.1%. If the figures come in lower than this, it will be supportive of further US dollar selling, given the decreased conviction that would emerge from the US Fed with regard to a rate rise. We've still got a full month until the next FOMC meeting, so sensitivity around data will be high.


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: The Conf. Board of Australia releases leading index at 10am, HSBC Chinese PMI at 12:45pm, third-party European PMI at 7:30pm/8pm, UK CPI at 8:30pm, US CPI at 11:30pm, Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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