Markets In Asia Feed Off The Risk-On Sentiment From Overnight

Equity markets in Asia are following the positive lead of US and European stock markets on the back of a reasonably positive Spanish bill auction, strong Eurozone data, the IMF raising its forecasts and a hawkish tone from the Bank of Canada. The Spanish Treasury sold a total of EUR3.18bn, which was above the target size but yields were higher than those seen previously. The euro was also bolstered by the German April survey, with the current situation index rising to 40.7 from 37.6 and the economic sentiment index advancing to 23.4 from 22.3, representing the fifth consecutive rise.

Gains in the FX market were more muted than equities, with the dollar index barley falling as investors clearly remain wary of risk currencies. But the aussie managed to claw back some losses (around 5%) and pushed through 1.0400 against the dollar. The euro, however, was broadly unchanged overnight, but price action was fairly choppy following the German data and the Spanish bill auction.

The lack of market moving data may keep a few investors in Asia on the sidelines given the nervousness in the market surrounding tomorrow’s Spanish bond auction. Thus, it will be interesting to see if the aussie can hold its ground against the dollar.

Recently, a push above 1.0400 for AUDUSD has sent the pair towards a major resistance line around 1.0450, but we are looking for confirmation from a break of the overnight high around 1.0420 before a technical push towards the 1.0450 level.

Gold is also in an interesting position, as the yellow metal hovers around a sticking point (USD1650). XAUUSD has traded in a fairly tight range all week – except for a slid last night to around 1634.34 – between around 1640.80-1658.01. If the pair breaks through the top of this trading band it may find resistance around 1663.26-1664.04. 

Overnight equity markets had a strong rally due mainly due to solid US company earnings coupled with positive results from a Spanish government bill auction and upbeat German investor sentiment numbers.

The Dow Index soared 194 points to finish the day at 13,115, closing above the psychological level of 13,000for the first time in two weeks while the S&P 500 jumped 21.21 points to close at 1,390. Earlier in the session European shares closed sharply higher after a well-received Spanish debt auction.

The RBA last rate decision minutes were released yesterday which showed that they can justify a rate cut if 1Q inflation data comes in reasonably low as expected, this will be released this coming Tuesday. On this news the AUDUSD traded down to overnight lows of 1.0305 but has subsequently rallied to as high as 1.0415.

On the economic front, the US Commerce Department released figures that showed that housing starts tumbled unexpectedly to 5.8 percent to a seasonally adjusted annual rate of 654,000 units last month. While the Federal Reserve industrial production data was flat for a second consecutive month in March.

WTI crude oil  climbed to a two week high as Spain raised more than its maximum target at a debt auction followed by news that the IMF bolstered its global growth outlook. WTI crude traded up from overnight lows 102.66 to as high as 105.06.