EUR/USD
The EU summit came up with all the answers as far as the market is concerned, blowing the shorts away and seeing the Euro taking out the 61.8% Fibo level of the 1.4545/1.3138 move at 1.4005 before racing on to the 78.6% retracement, trading to a high of 1.4247, precisely 61.8% of 1.4940/1.3138, from 4 May 2011. How long the enthusiasm remains before reality sets in, remains to be seen.
The deal has seen the banks take a 50% write-down on their Greek debt and a requirement to raise their tier 1 capital ratio to 9% by 30/6/12. The EFSF will be leveraged by 4-5 times and China has indicated that it will add support, given certain assurances that their investments will be safe, which has helped the Euro along its way as the risk on trade returned with a vengeance today.
Equities have roared higher with CAC up 6.28%, the DAX up 5.35% and in the US, the S+P has blown out the resistance levels by rising 3.4% to close at 1284.
The possibility of a trade to 1.46/1.47 that I wrote about on Sunday suddenly doesn't seem so far away, although we still have a lot of work to do before we see those levels, if indeed we do at all. The daily indicators continue to point aggressively higher and it appears to me as though dips will continue to be reasonably shallow as the shorts struggle to cut positions. It doesn't look as though the hedge fund returns this Quarter are likely to be very pretty!
In the short term, the hourlies are very overbought and it would be no surprise to see a session of consolidation and the possibility of a partial pullback as we pause for a breath before gearing up for the next leg higher. Pullbacks are going to see support at 1.4140 and then 1.4075 and 1.4005, but we are unlikely to see the lower levels today. To the topside, the next hurdle to overcome is a sustained move above today’s highs – the 78.6% level of the 1.4545/1.3138. If that can be conquered then 1.4280 and 1.4330 will act as barriers. Beyond there, there is not a lot to stop a run at 1.4550.
Although today everything seems very hunky dory, we are not out of the woods at all and the case remains that Greece is a basket case, with Italy not so very far behind. The problems of the structure of the EU have not gone away, and it won’t be too long before we get reminded of that. Before that can manifest itself in the level of the Euro though, it looks as though we need to get rid of the rest of the shorts and for the market to find a level of comfort in the Euro being back above 1.4000.
As far as today is concerned use 1.4150/1.4280 as a guide, at least until Europe gets going again. Today is light on data, with US Personal Expenditure and Michigan consumer sentiment Index to provide interest. Good luck
AUD/USD
The AUD, as with everything else has blown the shorts away today, trading in more or less a straight line up to 1.0752 since breaking above 1.0500 resistance
in late Asia, yesterday. The EU deal has seen the risk trade return strongly as equities, commodities and the commodity bloc currencies all return to favour. I
can’t find many people around that have been on this move and it looks as though it may have further to go as the shorts scramble to cover.
Where to from here? The dailies still continue to point higher and pullbacks are likely to be reasonably slight while the positive vibes last in Europe. For today
though it looks as though 1.0650/1.0750 should cover it as we unwind some of the short term overbought condition of the market. Further out, if the 1 Sept
high at 1.0763 can be overcome, then we are likely to head towards 1.0900. The downside, for the time being sees medium term support now at around 1.0500,
although it does not appear that we are likely to see that any time in the immediate future.
Keep an eye on the equity markets. The S+P took out some big chart levels with ease today and now look as though it wants to take a peek at 1300/10 levels.
The dailies point higher and although getting towards overbought territory, they are not showing any sign of wanting to turn around. If this is the case the
AUD will continue its march north.
