EUR/USD
The Euro ended the week on a fairly flat note as we head towards the holiday. Mildly
positive risk sentiment ensured that we did not retest the week’s lows at 1.2945 as
trade went sideways throughout the session on general lack of interest.
Next week concerns will dwell on the credit ratings of some of the indebted EU nations,
as the European economy slows, possibly into recession. Downgrades could be handed
to France and even Germany, which, if seen would ensure that the pressure remains on
the Euro as borrowing costs increase at a very difficult time. France has already had its
outlook downgraded from stable to negative by Fitch and it seems only a matter of time
before more aggressive action is seen, which in a rapidly thinning market could have
exaggerated consequences. Fitch has actually gone further than this by saying that it
thinks the EU has gone beyond the point of no return and that a recovery is technically
and politically now out of reach.
From a technical perspective, the Euro continues to look very fragile. Despite rallying off
its lows, the upside has been slow going for the last couple of days and it appears that it
is unwinding its short term oversold condition by just moving sideways, before another
leg lower. It is hard to see anyone wanting to go into the Xmas holiday period holding
Euro exposure in case of an unforseen event, so the upside continues to look pretty
limited. It does not appear as though it will receive any help at all from next Tuesdays
German IFO report, which is expected to see further weakness in the economy.
The hourly charts have more or less flattened out, leaving the short term bias neutral
and the 4 hourlies are in the process of unwinding. It may be that we see another push
higher but I would be surprised to see us take out 1.3200 at this stage, although in very
illiquid markets a short squeeze is always possible. If we were to see the Euro trade up
to this sort of level it would present a selling opportunity for another move lower. The
dailies and the weeklies are both pointing down so any strength should be short lived.
Support is at 1.2945 (last week’s low), 1.2870 (10 Jan low/ Channel support – see chart),
and then at 1.2600; (76.4% of 1.1870/1.4940). The 1.2870 level could prove quite strong
and for those who are short, it may be a prudent level to think about taking some risk
off the table before Christmas.
Apart from the German IFO (Tuesday), the main economic data will be US GDP (Thurs).
AUD/USD
The AUD continued to show some strength on Friday, trading as high as 1.0027
at one stage, as risk sentiment recovered mildly in the absence of any misplaced
quotes from the EU and news that US headline CPI moderated slightly more
than expected to 3.4% yoy, although core inflation unexpectedly climbed to
2.2%.
In the end it was not a bad finish for the Aud. Further gains, although possible,
might be hard to sustain. It would not surprise to see a move into the holiday
period with the AUD hanging around parity.
Technically, resistance will be seen at 1.0030, 1.0060 and then at 1.0120,
although it would be a surprise to see strength to this level. The downside sees
support at 0.9935 and then at 0.9860.Below here would see a return to 0.9775,
although this doesn't look likely early in the week. All in all it looks as though we
should be in for a range bound market as we head towards Christmas, with the
caveat of the odd spike, one way or the other, in thin conditions.
RBA Minutes Tuesday.
