The MACD on the daily chart is above zero for the first time since Janaury 7 and highlights that the trend is to the upside. The key level the market will be looking for is 1.3845 (the downtrend drawn from the 2008 and 2011 highs), but it is clear the market doesn’t want to be overweight on the USD right now and with US data slowing down, investors have been closing USD longs. In US trade we get Fed memebers Dennis Lockhart (04:15 AEDT) and Jamie Bullard (05:00 AEDT), while the Fed minutes are released at 06:00 AEDT. If you look at the Fed funds rate, the market is pricing in 56 basis point by the end of 2015, which is nineteen basis point below the Feds own forecast. Anyone who thought the USD bulls would be testing the credibility of the Fed’s forward guidance seems mistaken at this stage.
Once again we are seeing the market defend the 38.2% retracement of the October to January sell-off at 0.9079. If you look at yesterdays candle on the daily chart it printed a doji pattern, highlighting the indecison in the market. A neutral stance on the pair is warranted, and I am waiting for the market to dictate play. At 11:30 AEDT we get Australian Q4 wage costs and the market expects a slight slowdown to 2.5% yoy (from 2.7%). Naturally this is a key input into inflation expectations, so a number below this fugure could feed into the idea that inflation in Australia could fall in the coming quarters.
Cable has pulled back somewhat from the recent high of 1.6823 and the bulls will be hoping to re-initiate fresh longs at 1.6605 (the 38.2% retracement of the 1.6252 to 1.6823 rally). In UK trade (20:30 AEDT) we get the latest employment change and unemployment rate, although this metric is slightly less important these days for sterling given the BoE new guidance.
As things stand the index is trading above 5400 and a modestly higher open is expected for the underlying market. It will be a busy day for stock pickers with FMG, WPL, MGX, SUN, SXL, WES, BXB and SEK.
With RIO and BHP both coming out with good earnings reports it will down to FMG to keep the ball rolling. The miner is likely to report just after the open of the cash market and the range for underlying net profit is fairly wide (consensus for NPAT is $1.2 billion). Last month FMG lowered its 2014 shipping guidance the low end of 127 to 135mt range, however if you look at price action the stock continues to print higher highs and looks strong. Keep an eye on the health of its balance sheet, which should highlight a reduction in its net debt position and given what we have seen from its peers an update on costs is key. They are expected to pay an interim dividend of 5c (fully franked).