After a few days away from the markets (and the Greece tape bombs), I walked in this morning to find a full blown implosion in the aussie rates market. Paying positions have been sufficiently squeezed such that the August IB’s are pricing in a 1/3 chance of a 25 bp cut and around a full cut priced in through the end of the year. This is despite the fact that, even in the face of the early stages of Dutch disease, the RBA believes “further tightening in monetary policy would be necessary at some point (emphasis mine).” I think now is the time to go long.
The Sep IR chart (first chart) to me looks very bearish. We recently notched a higher close than the March blowup but the RSI failed to confirm this (see white and red arrows). PLUS, the RSI has flipped out of overbought which as Saeed has studied, is the time to sell. So the rates market is giving two distinct bearish signals (higher rates). This should be supportive of the currency as the market prices out something that won’t happen (RBA cuts).
Next is copper (second chart). The PhD in economics has been marking time lately but what I think is interesting is how aggregate open interest has been steadily rising (white arrow). After an extended selloff, this, to me, indicates ACCUMULATION and should be treated as a BULLISH signal.
Also note how the S&P 500 keeps bouncing off the 200 day and the March lows at 1250 have held for now.
Rates. Commodities. Stocks. All are oz supportive. I am long here and will add by the equity close with a stop below good support at 1.0390 (double bottom from mid April and today). A move back towards 1.06 is very reasonable.
Nomura Holdings, Inc. group