Just a quick update on what is happening in our timezone today which comes with the VERY BIG codicle that Asia often gets it wrong first up after a weekend where a bit of doom and gloom reigns.
But we talked a couple of weeks ago about how the European troubles last week and the impact they would have by changing the currency, if not entire investment, landscape.
So as I look at my Bloomberg Terminal I see that:
- the Major bourses of our region are down at least 1.5%,
- the Aussie is off 0.8% to 1.0570
- Dow and S&P futures are off about 0.5%
- US interest rate futures are rallying
- Australian 3 year swap rates have rallied back to 5.26%
- the market has once again wound in expectations of RBA rate hikes with only 1 0.25% move now priced out to 1 year AND
- overall a feeling that is more than disquiet but less than panic is gripping markets.
As I’ve become accustomed to noting lately, the fingers of instability are growing and when Greece finally restructures, reprofiles or as we’ll all know it is – defaults i’m not sure what impact this will have short term. But it won’t be good.
So the Aussie, as a risk asset – and the worlds favourite punt, is – to put it blultly – at risk. Here is the hourly chart.
For those of us who use technicals this is a really cool chart. Having traded in a nice little upsloping flag/pennant formation last week with a high at/around the 50% retracement of the previous hourly move, the Aussie has broken down today and looks set to retest last week’s lows.
Now, levels are to be respected unless or until they break , but if the 1.0500/10 region gives way then a Fibo projection of this move is our next target of 1.0350. The dailies are also calling for this level with 1.0359 50% of the March-May upmove.
That’s a couple of different time frames to get to that target, so I’m guessing we are going to see it tested and after here we’ll look at 1.0205.
I reckon at the moment with volatility relatively low for 1 month Aussie options and with them looking like they are plateauing, along with vol prices in other “risk” markets, that something is brewing.
I’d want to be long puts for a week or so because even if this is just an Asian session headcold I think a dose of the European flu is coming for markets.
Disclaimer: This post is not advice or a recommendation to buy or sell. We have not taken your specific circumstances into account. Do your own research and consult an adviser before allocating capital or undertaking hedges.