EUR/USD
The potential for an “Unknown, Game Changing plan” that we spoke about on
Sunday, appears to have taken place, with co-ordinated Central Bank action to ease
monetary policy and to provide liquidity through cheaper US$ funding to support
the global financial system. China led the way with a 0.5% cut in their banks Reserve
Ratio Requirement, and the G7 Central Banks followed closely on behind.
Everything else got left in the wake of this news, although it should be noted that
the ADP employment numbers in the US were +206K, against the expected rise of
+128K. The much stronger figure comes ahead of tomorrow’s NFP numbers and
should ensure the market remains in a positive mood until then.
The Dollar spiked lower and the Euro, needless to say, soared once the news broke,
as did all other risk assets. The DAX rose by 5%, the CAC 40 by 3.2% & the US is
finishing the session with the S+P +4.3%. The charts were rendered useless, as the
Euro spiked from 1.3285 to 1.3533, before dropping back by 100 points to the low
1.34 area that had previously acted as support. The markets have undoubtedly
been caught pretty short in the Euro and in the end they may well be right, but for
the time being it looks as though bids towards 1.3400 will be well supported as
shorts attempt to recover their losses.
As far as Asia is concerned, one suspects that the market will be pretty
nonplussed as it attempts to digest what this news means for the longer term
direction of the Euro. I suspect we will be in for a day of 1.34/1.35 with the
oscillators hinting of further gains. It is a day though to be very flexible as the
market will remain very nervous. As far as support/resistance levels are concerned,
1.3452 and 1.3603 act as 23.6% and 38.2% of the move from 1.4245 to 1.3210. The
first of these is currently acting as a level to be overcome, although we have already
seen a trade above 1.35.
Ahead, we have China and EU PMI and US jobless claims, ISM and Construction
Spending. For now tread very lightly! Good luck!
AUD/USD
The AUD was drifting lower again, trading at 0.9940 when the Central Bank
Action was announced and took a turbo charged ride to 1.0330 before
retreating to 1.0250 area and has done enough to completely spook a market
caught short of Aud. Commodity prices also had a big turnaround today,
generally up between 3%-5% over the session.
It looks as though it will be a nervous day. It would not surprise to see some
early sellers come in to take advantage of the current levels, but the market
should be well supported and levels under 1.02 are unlikely, at least early on in
the session. While the daily oscillators have turned sharply higher, the hourly
and 4 hourly indicators are very overbought and upside action would seem
pretty limited for now. I would suspect 1.0200/1.0300 should cover the action
early on. We get some important data later on though, with Australian Retail
Sales and the China Manufacturing PMI likely to provide the AUD with its next
directional move.
The downside, for the time being looks to be history. A break above today’s
highs would see a return to the 1.0400/30 pivot. Beyond there, 1.0765 is all
important. Below 1.0200 should see a return to 1.0075, but that seem some
way off at present. For the time being the best bet might be to stand aside until
the market settles down
