EUR/USD
Financial Markets drifted into the weekend on Friday following the euphoria of the previous
couple of days. The US$ regained a little of its lost ground in what was a quiet session with
participants generally waiting to see what the input from China is likely to be with regard to
investing in the EU. A number of somewhere between $50/$100 bio investment was bandied about the market, and we have to wait and see but a decent investment from China is likely to see another rally in the Euro. There is a level of scepticism to the EU deal though, in the financial markets, as evidenced by US Treasuries, which rallied on Friday from 11 week lows, as some participants seek to return to safe haven investments. Part of the reason for this came from Italy, where the bond auction saw the country's 10-year government bond's yield hit 6%. Fitch waded into the dialogue with their view that despite the positive moves from the EU, the 50% write-down of Greek debt does constitute a default. It noted that Greece still faces "significant challenges” despite the progress, and that the debt to GDP ratio remains at well over 100% of GDP.
Elsewhere, stocks closed the week, generally just off their highs but the dailies point at the
possibility of further gains to come..The S+P closed unchanged at 1285 while the DAX, CAC and FTSE closed mixed, between 0.15% up and 0.60% down.
Technically the Euro met its immediate objective on Thursday at 1.4253 (61.8% of
1.4940/1.3140). It needs to take this out in order to advance towards downtrend resistance
at 1.4325 and beyond here to the 76.4% Fibo level at 1.4515. A close above the 200DMA at
1.4125 is a positive start. The dailies continue to point higher and for the time being this still looks like the direction of least resistance.
The downside sees immediate support at the 200DMA and below here at 1.4005, which
broke on Thursday and previously acted as Fibo resistance (61.8% of 1.4545/1.3140).
Early in the week it would not surprise to see some further consolidation in 1.4000/1.4250 as the short term indicators unwind their overbought status, before continuing to run higher.
We have an action packed week ahead! Economic highlights will be China Mfg PMI (Tues),
German Unemployment and FOMC Rate Decision/ Press Conference (Wed), ECB Rate
Decision/Press Conference (Thurs), G20 (Thur/Fri), US Non Farms/Unemployment (Friday) .
Good luck, with all this to look forward to, it is likely to be a busy week!
AUD/USD
The AUD has had a stellar couple of weeks, bouncing 13 big figures from the 0.9385
lows that now look like ancient history. This rebound has been very expensive to a
market that got into selling rallies, only to have to buy back higher with the AUD
offering no respite to shorts, whatsoever. Further upside will require a break of
strong resistance at 1.0765, which is unlikely to happen before the RBA meet on
Tuesday, and if they cut, unlikely to happen at all in the very near future. With the
press coverage of the iron ore price having collapsed 30% in the last few weeks as
demand from China diminishes, and the consequent flow on effects to the
Australian economy, it is difficult to see the AUD breaking to the upside any time
soon. It may be a different matter if rates stay unchanged.
Having said all that, the daily indicators, as per the charts, continue to point higher
and the 4 hourlies have begun to unwind some of their overbought nature following
last Friday’s consolidative session. Early in the week I would think a continuation of
Fridays 1.0650/1.0750 may well cover it, with further direction to be taken from the
RBA and then later from the FOMC.
In the bigger picture, while 1.0650 provides short term support, it is not until 1.0500
that we come across anything major. If China’s level of support for the EU deal
disappoints, we could see ourselves back down here in a hurry, and below here
would neutralize sentiment for a period of consolidative action. Right now this looks
unlikely.
On the topside, should 1.0765 get taken out, there is not a lot to stop a sharp move
to 1.0900 – not too far away from taking out the 1.1080 highs. At this stage I don't
see that happening but be very flexible here. The weeklies, which were attempting
a push lower 3 weeks ago, are now turning around to point higher. It looks like being a
volatile ride into Christmas so stay nimble.
Melbourne holiday/RBA Tuesday.
