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Short-term momentum favours upside for AUD

Four markets in focus today.

Australia 200 cash (ASX 200)

It’s been an interesting start to the year for the market, with the index bucking the seasonal trend of a good January performance. This seems in fitting with other global markets, notably in China where traders continue to push the index lower after a poor 2013. China remains the dominant theme here and it’s clear authorities are trying to curb hot money inflows, which can boost credit in the economy. It’s interesting to see that after scanning the market; I found 25% of ASX 200 listed stocks have downside potential to their consensus 12-month price target, which is the highest number for some time. There are even nine which have 10% downside risks. It’s also worth pointing out that of the top ten best performing stocks this year, eight of them are gold stocks, with SLR the best performer.

Silverlake Resources (SLR)

SLR is the best performing ASX 200 listed stock this year after a dreadful 2013. Perhaps this is predominantly position adjustment, but short-term momentum is to the upside, with the stock up 90% from December 4. Traders will be keen to watch the 200-day moving average at 85c.

US 500 (S&P 500)

The quants are flying in, most of them portraying a bearish picture given the first three days of trade. Firstly the S&P never closed in negative territory in 2012 and 2013, while in 2014 the opposite is true and we haven’t seen a positive close. It’s also worth highlighting that since 1927 the index has recorded positive years 66% of the time, however if the first five days are positive, this performance improves to 77%. If the first five days are negative (which looks like materialising) then historically the probability of the full year falling increases from over 30% to 52%. Of course this has no bearing on short-term direction, but it’s worth pointing out that many do look at January as a barometer of how the year may pan out.

AUD/USD

The short-term momentum favours further upside and personally I’d be looking to re-establish shorts at 0.9180. As long as the pair holds 0.8946 then we could see a further squeeze to 0.9180. At 11:30 AEDT we get the latest trade balance figures and the market expects a slight narrowing of this data point to $300 million. A number higher than this could weaken the AUD given the implication of future GDP reads.

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