EUR/USD
Just when we thought we might get through the holiday period without too
much damage, the financial markets took a beating as risk aversion took hold,
sending the Euro lower to a 12 month low against the dollar (1.2911), a 10 year
low against the Yen (100.71) and an all time low against the AUD at 1.2769.
The Euro was not alone as Sterling came off 1.5% and elsewhere, Silver took a
5% hit, Gold and Oil, almost 2%. The DAX closed 2% lower and the S+P is down
about 1%
All of this came despite a better than expected Italian bond auction and there
seems little reason for these moves except that markets are extremely thin and
any move can become exaggerated. The one thing worrying the market appears
to be that the funds (EUR 489 bio) taken out from the ECB last week by the
500+ banks, has been placed straight back with the ECB to be used as a reserve
for their own use, rather than to be used to lend to other banks, which is not
going to ease credit conditions throughout the economy.
Technically the 1.2945 support has turned into a pivot and I suspect Asia will
trade around this level today. The short term charts are extremely oversold,
given the violence of the move but the 4 hour charts have turned lower, having
flattened out completely over the holiday period.
The next major support comes in at 1.2870 (10 Jan 11 low). Below here would
lead to an acceleration to around 1.2690 (10 Sept 10 low).
I would not be too involved today unless looking to day-trade a nervous Asian
market with a view that the overnight low is likely to hold, while at the same
time being surprised to see a move back above 1.3000.
Tonight we see the German CPI.
AUD/USD
The AUD traded up to the downtrend resistance line at 1.0203 in Europe, which
was flatly rejected and resulted in a sharp move down to 1.0070, before a
partial bounce to around current levels. Conditions are extremely thin and
volatility exaggerated.
For the time being continue to use the converging trendlines as a guideline,
with the indictors hinting that we may see a test of the support levels in
sessions to come. 1.0050, and then 0.9970 are the areas to watch.
To the topside, 101.70 and 102 remain the immediate resistance levels to be
overcome.
Asia is unlikely to do too much and 1.0050/1.0150 should easily cover it.
