EUR/USD
After consolidating in Asia, the Euro tumbled at the European open, as the news sank in
that Papandreou has recommended that Greece should have a referendum on the EU
rescue deal, which if it happens (January is doing the rounds), and fails to pass could
well end up in a full default. This would bring in a whole new set of rules, and one would
think that their membership of the Euro itself could come under pressure, and would
cause a whole new flow on effect to Italy, Spain and the banking system. This all took
the EU by complete surprise and as a result European shares tanked. The DAX and CAC
both closed 5% - 5.4% lower with Milan down 6.8%. Italy, never slow to latch on to bad
news, saw their 10Year Bonds blow out to 6.3%. The ECB is due to meet Thursday, which
should make for interesting listening. To add to session woes, China PMI figures
suggested the economy is slowing just as Europe looks to be slipping back to recession.
Later in the session the Euro and US stocks attempted to recover some of their losses
when a Greek official called the referendum idea “basically dead” but the damage
appears to have been done. The Euro hit a low of 1.3607 before bouncing to current
levels and at the S+P close, ( down 2.79%), the Euro was trading at 1.3700.
Technically, the Euro rally looks well and truly over and the dailies, which have been
pointing higher and turned sharply down. The 1 hour and 4 hour charts are in oversold
territory and it would appear that for the Asian session we should see some
consolidation as these unwind. We have short term Fibo resistance at 1.3740, and
should this give way the possibility of a rise to 1.3795 and then 1.3850 (38.2% of
1.4253/1.3607). At most the rally should see 1.4012(61.8%). At present this looks
unlikely but in this market one never knows. On the downside 1.3694 remains 50% of
1.3138/1.4253. We have been below here today, but need a sustained break to head
towards 1.3565 (61.8%). With the dailies turning sharply lower it is possible that the
return to 1.31 is already underway, but take it on a session by session basis as we are in
for a volatile ride.
Today we get German Unemployment, and from the US the ADP and FOMC/Bernanke to
add into the mix.
AUD/USD
The RBA Rate Cut, assisted by the lower than expected China PMI figure, finally
sent the Aussie through support at 1.0500 yesterday. Further pressure was
added, as risk was reduced in a big way, following the ongoing, negative news
headlines coming out of Europe. The AUD got hit hard down through the
200DMA at 1.0403, to a low of 1.0270 before bouncing around in the 1.03/1.04
range for the rest of the session following the dips and rallies in the equity
markets. The S+P is closing down 2.79% (1218) with the AUD at 1.0335
The hourlies are attempting to recover from their short term oversold situation
but the 4 hour and daily charts are both now pointing back down suggesting
that we may have further weakness ahead of us.
Short term Fibo resistance lies above at 1.0380. The 200DMA is at 1.0403 and
above here the next Fibo level is at 1.0450. It doesn't look as though this is likely
to be disturbed today.
The downside sees support at the overnight low at 1.0270 and below here at
1.0230 lies the 38.2% support of the whole move up from 0.9385. It appears
that rallies will now attract good selling interest as the market chases its own
tail. All in all it would not surprise to see a couple of sessions of 1.02/1.05 trade
but direction ultimately depends largely on how the chaos in Europe proceeds.
Don't forget the FOMC/Bernanke tonight. Any mention of QE3 could see the
AUD come roaring back again, so be flexible.
New Home Sales/Building Permits today
