First overnight the AUD got hit hard around 7:30 p.m. EDT, then on no news whatsoever, the Euro took out sell stops right at $1.2500 sending the Euro plummeting lower, well ahead of the lackluster European PMIs out this morning; followed by Yen weakness around 5:15 a.m. sending USD/JPY nearly parabolic.
And as if out of no where on no news whatsoever, around 8 a.m. Index Futures which had been building a positive divegrence as you might suspect if you suspected what we suspected Friday toward the close for early trade today (specifically scenario #2 above), Index futures finally tried to play catch up with the USD/JPY...
Asian markets were split overnight, Shanghai was up +.41% with the Hang Seng down -.34% and the Nikkei closed for a holiday.
Europe was red from the open, at last check the FTSE -.47, the DAX -.32% and CAC 40 -0.40%
China PMI manufacturing printed disappointing at a 5 month low at 50.8 on consensus of 51.2 (previous 51.1) and don't forget how last week's BOJ devaluation of the Yen will effect the Chinese economy negatively or more negatively than it already has. Historically y this has led to antagonistic behavior from China in the form of military conflict, so keep an eye out for that in coming days and weeks.
Both New Orders and New Exports were down for China which isn't surprising given the fall in US imports and weakening Consumer demand.
Then came the Euro PMIs (manufacturing) which were not impressive. Both the Eurozone and Germany (another country expected to suffer under the BOJ's latest decision) both missed expectations while France remained in contractionary territory with a 48.5 print (anything below 50 is contraction).
The 80 trillion a month the BOJ plans to buy is roughly 15-20% of what the F_E_D was doing at its height. There's a debate as to whether this puts pressure on or takes pressure off the ECB with a meeting this Thursday. The consensus thus far is that it pressures the ECB, although after a lot of reading, few doubt the ECB will do anything much more than reiterate their commitment to using non-standard policy tools if needed. If the ECB does do anything (according to market consensus) it wouldn't be until at least the December meeting and that likely would only be a hint that they may do something as consensus for any such action would need to be solidified. Watch out for the ECB meeting Thursday.
The F_E_D has already sent the ECB a message as the Euro dropped at 2 p.m. on the F_O_M_C announcement that the F_E_D not only noticed the drop, but not to push things too far, sounding a lot like a veiled threat of a start-up of currency wars should the ECB try to engage in QE or larger asset purchases. Remember ow concerned the F_O_M_C was at the September meeting with a strong $USD hampering global growth, or at least that was that party line (within the Minutes released).
In the US we have mid-term election results Wednesday. Although conventional thinking is the Republicans take the Senate, a divided result should introduce more volatility in to the market with the Republicans taking control essentially priced in.
Also as far as US data we have Payrolls Friday.
The dynamic of weakening a Euro and certainly a weakening Yen should make for some very interesting and volatile currency markets through the rest of the year, again remember the F_O_M_C's nearly chief concern at the September meeting according to the minutes was a strong $USD and a weaker Yen/Euro causes a stronger $USD.
As for this morning's open, this was the expectation in last Friday's "The Week Ahead", however the next day or so will be important in gathering data to see what the market's reaction truly is to the BOJ's decision in the near term and the long term. As mentioned last week, conventional thinking would have expected the market to pop higher on Sept. 19th 2012 when QE3 was introduced, however our signals said no it wouldn't, even as that was one of the most emotionally pressuring moments in which I just wanted to close any short and buy all longs, we held for several days as the signals were correct and the market went no where, they continued to deteriorate and the market lost 8% with the initial QE announcement knee jerk putting in the highs that day in September that weren't revisited until 2013.
Now the algos caught up to USD/JPY it will be interesting as this was the open I suspected, in fact I was a bit puzzled overnight when I kept checking futures and seeing them down, however delayed though, the algo's finally kicked in and I believe that is on limit orders.
Lets see where we go from here, specifically for the later part of today and beyond.
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