EUR/USD
The Euro tried to rally on Friday and failed when both Belgium and Hungary
were downgraded and the Italian Government had to pay a yield of 7.81pc for a
2 Year bond sale, almost twice what they had to pay in a similar auction just 1
month ago. They also sold Eur 8b of 6 month T-bills, at a euro era record high of
6.504%, compared to 3.535% at the previous auction in October. All this on top
of last week’s German Bund auction has the market growing increasingly
alarmed. The Italian government will have to sell more than EUR30 billion of
new bonds by the end of January to refinance its debts, so it looks as though
the ECB are in for a busy start to 2012!
Technically the Euro is working its way through support, as can be seen on the
chart. The 1.3200 level currently holds, although we are not too far above it
after the Euro attempted to trade higher, to 1.3297 before declining again, in
thin conditions on Friday. The next test will be the 1.3145 low of 4 Oct.
The dailies are pointing sharply lower, as are the weeklies and monthlies, so for
the Euro to still be trading above 1.30 is pretty remarkable in itself. I don't think
this going to be the case for very long though, but getting set at the right level is
the tricky part. Fridays rally to 1.33 may have been it on the topside for now,
but we need to leave room to revisit this and possibly even 1.3400/20 which
provided good support over the last few weeks. I would be surprised to see it
above here now unless we were to see an unexpected game changing news
announcement that could force a strong bout of short covering, but the 4
hourly charts are somewhat oversold and are warning us about being too
overconfident of an immediate decline from here.
The coming weeks Economic highlights will be the China Mfg PMI (Thur) and
then the US Non Farm Payrolls (Fri).
AUD/USD
The AUD is finding it pretty hard to sustain any rallies, beyond the odd bouts of
short covering that do not seem to last more than a few hours, before being
slapped back down, as Fridays brief rally to 0.9773 showed us.
0.9660 is becoming a short term base and the way the 4 hourly charts are
attempting to correct their oversold status, we may see this level hold early in the
week. If it doesn't, expect a move towards support at 0.9620, and then, there is not
a lot before 0.9575 (50% of 0.8060/1.1082), 0.9530 and the previous 0.9385 low.
Although the 4 hourly charts are suggesting mildly higher levels may be seen, the
dailies are pointing lower and the weeklies are beginning to back them up, so I think
the game is, for conservative traders at least, to keep a small core short position
and to stand aside and leave room to sell into rallies towards 0.9800, possibly
0.9900. Above parity now, and we would need to reconsider the situation, so keep
SL tight up here, should we see it. Doubt it.
On the crosses, AUD/JPY (75.45) is still in its downtrend, although it is beginning to
look increasingly as though it is basing at the 76.4% Fibo support (of 72.07/83.99)
and a correction may be due. A break of 75.90 could see a short covering rally
towards 76.90, possibly 78.25. Until this happens though stay with the downtrend
for a retest of the strong support at 72.00.
Sterling/AUD (1.5900) and Euro/AUD (1.3630) are both very choppy within their
ranges but in the longer term looks as though they may be attempting a base, to
move higher. I am looking for a retest of the recent highs at 1.6355 and 1.4345
respectively, although this is a medium term play.
AUD/NZD looks to have found a temporary top at 1.3265. The dailies are heading
lower again and some further weakness may be in order, but I suspect around
1.3000 should provide buying opportunities for the next leg higher.
Watch out for the China PMI data on Thursday which will provide the Aud with
some direction.
