EUR/USD
26 of the 27 EU member nations agreed to rewrite the Treaty to include new rules
on fiscal unity with only the UK declining to sign up at the Summit on Friday. Early
scepticism turned around to guarded optimism by the end of the session as the 26
nations agreed to closer integration and to give up some sovereignty over tax and
spending, with strict rules and punishments for those who break them. Next week
sees bond auctions in both Italy and Spain which should give us an idea of how solid
the market support for the outcome of the Summit really is. The Euro had a volatile
day, Friday, as the mood swung either way ad it chopped around between
1.3280/1.3433, before settling roughly in the middle, not too distant from where it
started the week, leaving sentiment rather mixed. We shall have to see how the
conclusion of the Summit turns out in the long term but the immediate problem of
how to dig Europe out of its current debt situation has not gone away. The big issue
is really whether the ECB will be able to act more aggressively to add to liquidity
and to ease the borrowing requirements of the indebted nations. The ECB governor
was pretty clear on Thursday that this won’t be the case. We shall see.
There is little change to the technical outlook from the previous week. We sit in
neutral territory 5 points below last week’s close. Immediate resistance lies at
1.3450 and above here, the 2 Dec high at1.3546 remains intact. Further out 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 Fridays low, 1.3280 and below here at
1.3210 and 1.3145 (4 Oct low).
It is difficult to be overenthusiastic about the Euro at these levels and it would
appear that we have more choppy trade ahead, with a medium term bias to the
downside, although the daily oscillators are currently pointing mildly higher & the
4 hour indicators are heading in the same direction. The weeklies are tending in the
opposite path which all leaves for a fairly mixed situation. As Christmas looms, trade
is likely to be event driven, with exaggerated moves in increasingly illiquid markets.
Economic highlights this week are German ZEW, FOMC I/R Decision , Retail
Sales(Tues), ECB Monthly Report, EU CPI, (Thur) US, CPI(Fri).
AUD/USD
The AUD finished 5 pips above the previous week’s close! It was a pretty wild
ride on Thursday/Friday though, with a range of 1.0380/1.0046, so neither the
bulls nor the bears got any real satisfaction and it looks for now as though we
may be in for a continuation of the same choppy conditions. As usual, much will
depend on the EU situation and where stocks are headed, but keep an eye on
the slowing Chinese data, which if it continues, will weigh on the AUD.
The charts are pretty mixed right now and not offering much assistance. The
low on Friday at 1.0046 looks like an over-reaction and we are unlikely to see
this again early in the week. The hourly charts are suggesting we may see an
attempt at higher levels but at the same time a move to 1.0300/30 would see
sellers lining up, looking for the next leg lower.
Dips towards the previous support at 1.0150, and Fibo support at 1.0075, looks
likely to hold, unless we see something that suggests that the markets want to
make a run for the exit in a rush to reduce risk. Watch this week’s European
bond auctions closely on this front as a less than successful take-up would have
the markets worried again and could prompt a lower AUD.
In the meantime it looks as though we are going to be in for a directionless run
in to Christmas. The EU leaders are - thankfully – not meeting again this year,
although any reprieve from the politics could end very quickly with some
misguided statement coming from left field at any time, so be flexible and tread
carefully!
