European Open Cautious optimism for equities Brent above 70

Volatility is returning to global markets as the VIX trades at 2012 highs. Unfortunately FX is playing second fiddle to equities within risk trade scenario, which I personally have always found difficult to trade. If I look at the main equity bourses I tend to think that FX risk trade may still have further to unwind as thus far 2014 has seen the Dow off 7.6%, the S&P off 5.76% and the Nasdaq off 4.3%. The Nikkei is off a staggering 14.01%.

Overnight the action outside the 4% demise of the Nikkei was in AUD following the RBA meeting. This signalled that they have dropped their easing bias. The lifestyle Central Bank left cash rates unchanged at a record low of 2.5% but initiated their forward guidance basis by stating that ‘on present indications, the most popular course is likely to be a period of stability in interest rates.’ It was noted that consumer demand, business conditions and confidence have improved over the summer as they expect inflation to be higher over the three-month horizon but consistent over the two-year target of 2-3%. The RBA as usual commented on the AUD, saying ‘the Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy.’

The data calendar takes a pause today ahead of the busy end to the week with UK construction PMI data from the UK this morning along with PPI data from the EU. I dare say that we will see another weather distorted factory orders number from the US this afternoon.

EUR/USD

Supports 1.3475-1.3460-1.3400 | Resistance 1.3550-1.3575-1.3635


USD/JPY

Supports 100.60-99.80-98.50 | Resistance 101.40-101.75-102.90

GBP/USD

Supports 1.6245-1.6210-1.6180 | Resistance 1.6320-1.6375-1.6400