EUR/USD
The NFP rose by 200K on Friday sending the dollar higher across the board, but with little
effect on equities as the S+P finished lower by 0.25%. Increased tensions in the Eurozone did little to help as the political rhetoric continues to talk up the Euro but with the markets
focusing entirely on other factors, lower levels may yet be seen. Outside Germany, no
improvement in EU unemployment and probable recession, as well as continuing worries
over the Club Med nation’s debts are what the market is focusing on, as could be seen, Friday where 10 German/Italian bond spreads blew out to post Euro record levels.
The Euro continued to lose ground as it heads towards the 1.2593 Fibo support (76.4% of
1.4940/1.1875). Losses were also seen for the Euro on most the crosses.
Later today Merkel and Sarkozy get together to attempt to sort out the mess, when they will
discuss European economic convergence and a new treaty, in Berlin. This precedes a meeting they will have in Rome on 20 Jan with Italian PM, Monti, and ahead of the EU crisis summit meeting on Jan 30.The rhetoric will be positive, but the market has seen it all before..
Technically, the down trend remains strong as the Euro rapidly approaches the Fibo support at 1.2593. It may have a bit of work to do before/if we see this level. The bottom of the current channel is currently at 1.2658 and the 9 Sept 2010 low is at 1.2632, so both of these could see a temporary base before a correction.
Short term resistance is to be seen at 1.2745. Beyond here 1.2783 and 1.2840 act as Fibo
hurdles, while more medium term resistance is now at around 1.2930.
The daily chart indicators are attempting to point lower again, but are already oversold and
showing some divergence so I would be wary of being overly short down at these levels. If
Markel/Sarkozy do come up with something positive, the short covering rally could be quite
sharp, with positional trade entirely weighted to continuing Euro losses.
For Monday, it would appear that 1.2660/1.2750 might act as a guide early in the day, but
stay flexible for any press announcements later on.
The economic highlights of the week will be the US Beige Book (Tues) and the ECB Interest
Rate Decision/Press Conference on Thursday. There are scheduled bond auctions in
Germany, France, Italy & Spain to keep the market guessing as well.
In the US, Alcoa kick off the reporting season, Monday, with the announcement of their Q4
figures
AUD/USD
The AUD remains within its recent range and looks likely to continue to trade in
choppy fashion between 1.0040/1.0385, for now.
The oscillators are fairly mixed and it is not easy to define anything directional,
but overall I suspect that rallies to levels above 1.03 offer selling opportunities
for an eventual test of 1.0040, and then possibly below here towards the
0.9845 December low. This could take some time, so patience is required but
Chinese data on Monday may provide us with some direction. .
For now it appears that we can use the 50% Fibo level of the 1.0750/0.9660
move at 1.0202 as a pivot and employ the next Fibo support/resistance levels to
trade the range. These are seen at 1.0070/1.0330.
Should the AUD break above 1.0385, it would then be likely to see further
strength towards 1.0445 (3 Nov high) and possibly even to 1.0492 (76.4% of
1.0750/0.9960). This looks unlikely for the time being.
The oscillators are mixed and suggest we have more of the same choppy
conditions to come. Adding to this view is the sideways movement in the S+P
which itself looks unlikely to go too far in either direction for the time being.
The more directional move is seen in EUR/AUD which continues to make new all-
time lows at 1.2420. It may well continue lower from here, but I would be
looking to lighten up on short positions as we approach channel support at
around 1.2315, and given the oversold nature of the charts, would anticipate
some sort of bounce towards Fibo resistance, currently at 1.2740.
Monday sees ANZ job ads and Nov Retail Sales.
Importantly, we also get China trade Balance, CPI and PPI today and next week
sees GDP and IP data. General expectations are for a slowing in the overall
numbers, which may weigh on the AUD, so be flexible.
