Breakfast Blog

Good Morning,
                       Yesterday was a continuation in the Trend we have seen for the last weeki.e. Another day, another Day of Dollar Strength. We saw Higher Growth expectations from some Tier 1 Bank's capitulated in Cycle highs for USD against JPY, AUD and CHF. We also obviously saw a fresh cycle high, YTD high and All time high of 1650 in the S&P 500. Tuesday's in the Stock Market this year have been incredible, This combined with a POMO day (Day when Fed injects Liquidity) and some upbeat comments from Fund Manager David Tepper on his long equity positions caused a rally all day with 1% being put onto all American Indices and seeing the Nasdaq Break 3000 for the First time since 2000 even though Apple slipped in late trade to close under 450 at 443.
Looking at the Market in General, the Break of 100 in USDJPY has caused Japanese investors to pile their money into Dollars and American Equities, This is causing a huge flow dynamic which is weakening the Yen aggressively and adding fuel to the Equity markets. This will likely continue as long as the Yen continues to weaken. As I mentioned the Dollar has been gaining traction in the last 5 Trading sessions from some upbeat growth comments and strong Data, This has seen the Dollar gain back 300 Pips on the Euro, 300 against Sterling and nearly 400 against the Yen. Yet the Equity Markets still believe that Quantitative Easing will continue and our being pushed higher daily on low volume.
Equity Markets going higher on low volume is technically called a negative divergence and is a warning sign of a reversal, but as they say "trend is your friend" and buying any dips is the only play until their is a significant Fundamental Development that may cause the Markets to sell off. The only development this could be is a story, rumour or announcement of the Fed's intentions to Stop/reduce/taper Asset Purchases.
The EURUSD made a strong reversal at 1.32 last week and now finds itself below the 1.29 handle. How things change quick? I even saw a few analysts chatting about parity again this morning. Poor ZEW data from Germany yesterday has probably made the Market think about Additional cuts or Stimulus for the Single Currency combined with the Dollar Strength story it has been a steep decline for the Euro throughout the past few trading sessions.
Today we saw Poor Geman GDP data which pushed the Euro out of its 1.29-1.32 range and a daily close below here would give case for further declines towards the Yearly Low of 1.2745 and potentially further on a breach of that level.
Base Metals and Commodities in general continue to have a dismissal year with slowing Chinese Growth, slowing demand and Dollar Strength combined with a rotational issue into Equities it has seen Metals especially suffer huge losses. Gold Broke down out of its 1440-1480 range on Friday and trades at 1410 spot in Current trade, still looking heavy. One of the Main reasons I believe base metals have been hammered so hard this year is because of the Drop in inflation, Let me explain what I mean by this.
Ever since Central Banks started their Easing programs and flooded World Markets with liquidity and easy credit their was an expectation that Inflation would take off and be above 2% in all major Economic zone's. This has not been the Case at all, Inflation has declined in the States and in the Eurozone. Investors bidded up the Prices of Commodities in times of inflation as a place to protect the value of their money. This is especially true with Gold. Gold is traded as a currency and a direct hedge against Inflation. Since Inflation has not happened even though their is Trillions of printed money in the system The relative value of Gold must drop because it has no Intrinsic Value like Stocks that provide value and revenue streams for the investors. As long as the Inflation rate remains subdued, Gold will suffer further declines.
Good look in the Markets
Lowkey