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EU Market Outlook - Asian Tone Set to Battle Italian Bonds & Headlining

Last updated 8/30/2012 1:49 AM EST (GMT -5) 0 Comments - Add your comment

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Andrew Taylor

Market Strategist, GFT

Follow @ATaylor_GFT

Top Headlines

o    US Q2 GDP figures add to positive feel

o    AU Capex off slightly (3.4% v 3.0% exp) & big miss in volatile Building approval data (-17.3% vs -5.0% exp)

o    QE3 trade unwinds

o    Eyes on Italian 10 year Bond Auction

Market Moves

o    EUR held up well > AUD did not

o    Equity markets hit hard

o    Commodities ride the slowing Chinese demand wave

The Asian session finally saw markets that had links to QE3 and/or Chinese growth head lower as the penny finally dropped that there would be no QE3 at Jackson Hole and that there were questions over China's demand has run its course.

The Asian equity markets felt the brunt of falling iron ore prices that has declined 10% so far this week. This rise and now fall in this commodity is a direct reflection on demands from the Asian giant. AUD was also a casualty as traders were exposed to further pain as local home building approvals for July fell 17.5% from June. Even though this data is known to be a volatile beast, it was enough of a miss to shoot first and evaluate later.

The US session although flat on the day provided an encouraging platform with Q2 GDP figures coming better than expected but more importantly improving in a well documented difficult time for growth. Surprisingly the US markets held onto positions looking for QE3 which goes to show that the biggest barrackers for the Fed to ease are coming from within. Perhaps it’s those politicians who continue to hide behind Central Banks injections that mask just how poor of a job they are doing – just thinking.

Outlook

Today’s break lower saw some longer standing support levels taken out. This will provide some good resistance to sell any rallies in markets associated that are associated with Chinese growth and/or QE3 beneficiaries (equities, commodities and AUD the most notable). We are now seeing two games being played with the other being the likelihood that the ECB will find a way to implement its bond buying program. Watch for today’s Italian Bond Auction which is sure to draw great interest as it gives an indication to urgency to assist these troubled economies out.

For those that jumped on the EUR/USD trade > target of 1.2535 was hit. And those that shorted AUD/USD ahead of 1.0400 took half the position back at 1.0340 and the rest back just ahead of 1.0310 support (as noted in my AU/Asia morning piece).By the way, follow me on twitter for my up to date analysis @ATaylor_GFT

I prefer to still play on the overriding negative theme from the current commodity reactions stemming a current lack of Chinese demand and unwinding of QE3 positions. What will work well is that the ECB bond buying hopefuls are likely to bid up equities and AUD which will provide better opportunities in which to set shorts. The resistance points to sell into are:

AUD/USD - 1.0350/60 with stop above 1.0370 aiming to take half at 1.0325 (which is when you move your stop to entry) and the rest back at 1.0285

US30 (Dow) – 13080/90 with stop above 13100 taking half back at 13055 (stop to entry) and rest back at 13035

AUS200 – 4340/50 with stop above 4360 taking half back at 4315 (stop to entry) and the rest back at 4290

Enjoy and Good Luck

For more intraday analysis and trade ideas, follow me on twitter @ATaylor_GFT

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About The Author

Andrew Taylor's financial markets career started in 1991 in the interbank FX market,where he worked for one of the largest banks in Australia. Andrew then went on to trade on behalf of some of the biggest global banks, working across five of the world's major financial hubs: Sydney, New York, Singapore, Auckland, and Tokyo.

His more than 20 years of experience spans market borders and asset classes, covering global equities, commodities, options and futures. Andrew's wealth of trading experience and ability to communicate with traders of all levels has put him in demand as a first point of contact for clients and the media alike when seeking information and guidance.