AUD/USD
The AUD continued its short squeeze into the weekend. Once 1.0230 resistance eventually
gave way, the AUD did not look back and closed on its high as risk was reinstated in line withhigher equities and commodities.
A continuation of the move though, is about to run into some serious headwinds. Not only
are we up against the 200DMA, Fibo support-turned -resistance and the top of the channel,
but the short term indicators are beginning to show some divergence, suggesting that a
correction may not be too far away. I would think that early in the week the upside might be
pretty limited and some consolidation in the 1.0250/1.0400 range might be required if we
are to find the legs to overcome what lies above.
The daily charts are still pointing strongly higher though, suggesting that the overall uptrend
can continue. If the 200DMA (1.0395) can be successfully overcome, the points to look for
are 1.0430 and 1.0470. Above this, there is not a lot to stop the Aud heading towards 1.0640, but this is too far out at this stage.
The downside sees short term support at 1.0230 and then the Fibo level at 1.0120. Early in
the week I suspect 1.0250/1.0400 should cover it, but I suspect dips will be relatively shallow as long as the dailies point higher.
Two things to keep an eye on. Firstly, there has been a bit of media coverage in recent days
about how the EU crisis is hitting Chinese exports hard and consequently the potential for a
lessening of demand for raw materials from China, which would not do the Aud a lot of good.
Secondly, watch the S+P. The daily chart is similar to that of the Aud in that the indicators are still pointing north, but approaching good resistance. The S&P has more or less reached itsfirst upside target, (1220) but could move on towards 1264, from where it should turn lower , possibly quite sharply, as it fails at the neckline of the Daily Head/Shoulder formation. Where the S+P goes, the Aud is bound to follow so be wary! Above 1264 I would need to reassess and a return to 1300 may well be possible, at which point all the bears would be giving up (me included!) and so would be a potential top, and a point from where we could head lower, as bullish sentiment takes over, once the shorts have all covered.
Data highlights this week will be the RBA minutes (Tuesday).
EUR/USD
The Euro continued its painful short squeeze, despite last weeks downgrade of
Spain’s sovereign debt and then that of BNP on Friday (both by S+P), by closing at
1.3880 following economic better data from the US, where Sept retail sales were up
1.1%, double expectations. Google’s results, released late Thursday, improved by
29 %, & helped drive equities higher (Google +6%) as improved risk sentiment
allowed all risk assets to finish the week in a buoyant mood. The S&P finished up 6%
on the week and US$ priced commodities were also strongly higher adding to the
general pressure on the US$. Oil and Copper were both up 3.5%, Gold by about 1%
and Silver up 1.5%.
The G20 has been held over the w/e with the heat being turned up on the EU to
arrive at something concrete to resolve the debt crisis by the time of the European
leader’s summit on October 23. The likelihood of this doesn't seem very great if the
last 18 months of bickering is anything to go by and the dangers all seem to be on
the downside. We shall see.
Technically the Euro continues its sharp short-squeeze from last week’s 1.3138 low
closing on its high of 1.3880 and looking as though it wants to take a look at 1.4005,
61.8% retracement of the move down from 1.4550 down to 1.3138. Beyond here,
the next Fibo resistance, 76.4% is at 1.4210. Before then though 1.3932, the 15
September high would provide a hurdle to be overcome, and I would not start to
become hugely bullish 7 big figures above last week’s levels, although the
momentum does look to point higher for now. The rally appears to be completing a
5 wave sequence, which suggests a top could well form somewhere between
1.39/1.40 before the next leg lower begins.
For the time being the downside is supported at the base of the channel at around
1.3800, with Fibo support below at 1.3715 and then at 1.3675. A break back below
here would suggest the short squeeze is over and a return to the downside is on the
cards. At present this does not look likely early in the week.
Data highlights include German ZEW and US PPI + Bernanke (Tues), US CPI (Wed), &
German PPI (Thur),. Monday sees US IP, Cap Ut, & NY Empire Manufacturing Index
