EUR/USD
The NFP Number came in pretty close to expectations at +120K, while the
unemployment number improved to 8.6% - largely because of the amount of people
who have given up looking. All this meant that a brief spike above 1.35 (1.3548 high -
assisted by a rumour that NFP would by +200K) and was followed by an equally brief
look below 1.34 (1.3363 low – rumour of Spanish downgrade), before settling around
1.3400. This all leaves the Euro in pretty neutral territory at the end of a volatile week,
with little follow through buying after the spike up on Wednesday. The move higher in
the Euro following the recent Central Bank coordinated action has been pretty
unimpressive on the face of it. Certainly the commodity bloc currencies have received
far more benefit than the Euro; Equity markets even more so, with the DAX up 8.9%,
compared to the Euros 1.1% gain (Monday open to Friday close).
Next week has the potential to be hugely volatile as Merkel and Sarkozy meet on Monday,
with the expectation of a deal, on the road to some sort of fiscal unity that is hoped will
bring enduring stability to the EU (although Merkel is sticking to her guns and will not
support the creation of Euro Bonds - yet). This roadmap of a deal will then be put to the
EU summit on Friday but whether the other 17 Euro nations will like the idea of being a
principality of an EU, which is essentially financed and run from Berlin, remains to be
seen. Equally, the German population will not be too thrilled to be the guarantor of
Greek or Italian debt. The outcome of the Summit promises to have pretty major
ramifications, so watch this space closely. US Secretary Tim Geithner will be in Europe
for discussions on Wednesday/Thursday. Aside the EU summit, we also get the ECB rate
decision on, Thursday, where the market has built in a 25 bp cut.
Technically we are in pretty neutral territory right now and trading activity is likely to be
dominated by news flashes from the EU, followed by knee jerk spikes one way or the
other. Resistance at 1.3550 remains intact & above here 1.3610 (38.2) and 1.3730 (50%)
act as Fibo resistance of the move down from 1.4247/1.3210. Downside support is at
1.3325 and then at 1.3260 and 1.3210. Play it safe and leave tight SL. The charts are too
mixed to have a firm view, but if anything the daily indicators are currently pointing
towards the possibility of further strength. This though, could change very quickly.
Economic data, - ECB rate decision aside – sees EU GDP (Tues), China CPI, PPI (Fri).
AUD/USD
AUD has had a strong rebound this week, twice testing levels above 1.03 (Friday
high 1.0324), but failed both times and closed the week on the day’s lows, just
above 1.0200. The weakness in part stems from the expectation of a rate cut at the
upcoming RBA meeting on Tuesday. As they won’t meet again until February it
would appear that a cut is probably pretty realistic, particularly given the combined
Central Bank action last Wednesday to ease liquidity conditions.
Chinas services PMI was released on Saturday coming in at 49.7, down from the
previous month of 57.7 on much softer demand and may herald a soft start to the
week.
.Australian Unemployment and China CPI, PPI towards the end of the week, and of
course the outcome of the EU summit, will be drivers of the AUD this week, in what
is likely to be a volatile one.
Technically the rebound has been a strong one from the 0.9660 and the momentum
suggests that we may have further to go. It would not surprise to see further tests
on 1.0300 and possibly towards 1.0400, which if seen, would be difficult to
overcome given the looming presence of the 100 DMA (1.0313) and the 200DMA
(1.0406).
The downside, for now, looks to be protected at 1.0150 (minor) and then 1.0075
(Fibo). It is not really possible to hold a firm view one way or the other at present
and the best strategy is to take it session by session. Although the dailies do point
higher, the 4 hour charts continue to unwind from their overbought situation
following their strong run higher last week, so a drift towards the 1.0150 support
could well be on the cards. There will be bids down here and these could get filled,
given the likelihood of a rate cut, but I think the market is going to be pretty
choppy, particularly as liquidity begins to dry up as we approach the Christmas
break.
Be flexible and keep SL tight. Use 1.01/1.04 as parameters, but further out keep an
eye on 1.0750. A break above here would be a whole new ball game.
