IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The key event of the week didn’t deliver any big surprises, but still managed to drive the US dollar higher as investors continue to bet on the Fed tapering off on QE. Fed chief Ben Bernanke continued to sound dovish about the risk of a premature end to QE. However, in another press conference, Ben Bernanke commented that the Fed could reduce the pace of bond purchases if the jobs market continues to improve. Having said that, there have to be clear signs that the recovery can be sustained.

There were some big moves in the FX space, with USD/JPY spiking to a fresh high of ¥103.74, knocking out the recent high at ¥103.30. Current USD volatility/strength is making life easier for Japanese officials, as USD/JPY just continues to nudge higher. We have the BoJ’s monthly report due out today and perhaps this will spark further volatility in the pair. EUR/USD also experienced significant volatility after a spike to $1.30 was greeted by sellers and dropped all the way down to $1.283 on the back of USD strength. Today is a big day for the single currency, with several PMI readings set to be released. These will give a better indication of how the eurozone economy is travelling and potentially impact the ECB’s decision on whether to do something about growth.

The PMI releases will be followed by Mario Draghi’s speech, which will be in US trade. Near-term support for the pair is in the $1.28 region, which is where the lows from last week are. Meanwhile, AUD/USD has dropped below 0.97 to its lowest level since June 2012. Although the local currency has recovered some ground from US session lows, it still appears extremely bearish and traders are now looking at targets in the $0.958 region. With China’s HSBC flash manufacturing PMI due out, along with MI inflation expectations, it could be another volatile session for the AUD and regional equities. We also have US unemployment claims due out later today and these will deserve some attention as the labour market holds the key for QE.

Ahead of the open, we are calling the ASX 200 down 0.4% at 5144. This basically mirrors some of the losses seen in US equities on concerns that the Fed will taper off as early as June. We might see US dollar strength, which is likely to weigh on commodities and in turn some of our commodity-related stocks. However, at the moment we are only looking at mild losses in the resource space, with BHP’s ADR only pointing to a 0.1% fall to 35.22. Gold names might be a bit worse off as the precious metal tumbled on USD strength.

Iluka was an interesting one to watch on the back of comments from its annual general meeting yesterday. We might see the stock’s run continue as the outlook for mineral sands improves. USD earners will be beneficiaries of the AUD/USD drop, and this should support the likes of Newscorp and ResMed. Cochclear might struggle after a big fall in the US after being downgraded to sell (from neutral) by Goldman Sachs. Another USD stock, James Hardie, has reported FY earnings today and this will put it firmly in focus.
Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9702 -0.0066 -0.68%
USD/JPY 103.1400 0.5350 0.52%
ASX (cash) 5144 -21 -0.41%
US DOW (cash) 15347 -28 -0.18%
US S&P (cash) 1660.9 -8.4 -0.50%
UK FTSE (cash) 6787 -7 -0.10%
German DAX (cash) 8469 6 0.07%
Japan 225 (cash) 15664 37 0.24%
Rio Tinto Plc (London) 30.42 0.63 2.11%
BHP Billiton Plc (London) 20.02 0.20 0.98%
BHP Billiton Ltd. ADR (US) (AUD) 35.22 -0.05 -0.14%
US Light Crude Oil (June) 94.07 -1.70 -1.77%
Gold (spot) 1370.50 -8.5 -0.62%
Aluminium (London) 1879 17 0.91%
Copper (London) 7441 24 0.33%
Nickel (London) 15170 99 0.65%
Zinc (London) 1874 14 0.76%
Iron Ore 123.2 -0.4 -0.32%

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.

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