Jay Norris'  Instablog

The Aussie dropped precipitously today on a surprise negative retail sales number to post a 6-month low settlement. The headline Aussie retail sales figure was expected at 0.2% and came in at -0.2%. It's very bad when you have an economy the size of Australia with a decidedly younger population compared to the other major economies, and they still can't put up positive retail sales. On the bright side with such terrible numbers - the expected number was dismal, the actual worse - even a slight up-tick in June will look great in comparison. What does look somewhat interesting from the longer-term trader's perspective is the potential for a buy set-up somewhere around 95.00 which is halfway between the 2011 low and the 50% retracement of the 2010-2011rally - see Figure 1... A double bottom in this area may be worth looking at from a yield perspective. Keep in mind at 50 to 1 margin - standard U.S. margin rate - the Aussie yields 187% annually, that may seem quite risky but start to scale it back to 10 to 1 and it's still 37% which starts looking a bit more manageable. With a yield 2-3/4% above the other majors the Aussie is still the carry trade de jour for institutions.

Figure1. Weekly AUDUSD Chart

EURUSD keeps rolling right along toward our intermediate target of 119.00. The Euro did however wait a respectable 1-1/2 hour s until after ECB President Draghi's alleged "off the record speech" during the U.S. session before plunging into the U.S. afternoon session. For all the downside the Euro has still been generous with intraday rallies to sell which tells us market-makers are doing their job - which from a trader's stand-point is all that matters. An orderly market is always much appreciated. With an anemic German Retail Sales figure just over my horizon -- into Thursday's session -- we hope market makers keep up the good work!

USDCAD, along with the U.S. Dollar Index, continues to be a benefactor of the glut of bad global economic data. The Loonie is down over 5% the past month and joined the ranks of countries with shrinking retail sales figures last week. Other than a rockin' good U.S. non-farm payroll number somewhere north of 175K on Friday there really doesn't look to be anything in the way of USDCAD moving on the 2011 high at 106.50, which is our current upside target.

Figure 2. Daily USDCAD Chart

The current slowing global economy will test the Fed's own internal differences regarding less QE which has been their message, or more QE which markets would like to see. Regardless the Fed appears to have been ahead of its trading partners in using QE to its advantage the previous few years while the other majors took what they saw as a more conservative path. If we do get an upside surprise on Friday's U.S. non-farm payroll figure it would likely prompt a short-covering pop which defends the Euro, Aussie, Cad, etc.; and if it comes in below 120K or so…that would be bad.

Jay Norris is a professor at www.IBUniversity.com

Trading is a risky endeavor and not suitable for all investors!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.