Market update: Calm after insanity

After two insane Risk-On days in the market led by the intervention of the BoJ on Friday, therefore pushing USDJPY to new highs (up 5 figures and hit a high of 114.20 during London trading session) and taking the equity markets with him, it is time for consolidation with the Nikkei index down 500pts from highs closing below the 17,000 (16,862.47).

After yesterday’s disappointing PMIs, European equities are continuing their decline from Friday highs while the 2-year bond yields are trading below for most of the core countries (except France 1bps in orange and Belgium 0.7bps in green as you can see it on the chart below).

Bonds2Y(Source: Reuters)

The S&P500 futures are also down this morning with the Dec14 Emini contract trading at 2008.75. With no major news today (perhaps Durable Goods to watch in the US), it looks like a rangy session.

We saw overnight that the RBA kept its cash rate steady [as expected] at 2.5% for the thirteenth consecutive month with some comments from Governor Stevens [as usual] that the exchange rate remains strong and overvalued based on historical data. It seems that there is nothing he can do about the Aussie strength; sure the Aussie will go down in the long term, but I believe the process will be slowly and gradual.

Meanwhile, in term of fundamentals, approvals for the constructions of new homes fell 11% across Australia in September (vs -1% expected) and the country’s trade deficit widened to 2.26bn AUD from revised 1.01bn AUD in August.

Next important figure is the employment report on Thursday.

Coming back to the AUDNZD trade (follow my trade ideas on Twitter @LFXYvan),

Yesterday, I went short AUDNZD at 1.1270, with a first target at 1.1140 and a stop loss above 1.1360. I know there are a few ‘important’ fundamentals coming up in the two countries this week, however weakening signs we saw in China lately made me think that neither the Aussie or the Kiwi should benefit from that situation, therefore this is why I emphasized the technical part.

Yesterday’s chart on AUDNZD…