EUR/USD
It was perhaps too much to hope that we could get through Friday 13th
without some kind of Euro crisis. It came, late in the day, care of S+P swinging the axe on sovereign credit ratings including France and Austria (1 notch lower). Sarkozy must be delighted, with the French election fast approaching on 22 April! It is sometimes hard to see who is leading the charge lower in Europe: the banks/politicians or the ratings agencies, but S& P did give due warning that this would happen but the Euro was holding up on the day until they stepped in. The lowering of the ratings (which also included Malta, Slovenia, Slovakia, Cyprus, Italy, Portugal and Spain (2 notches)– but no Ireland?) is going to make it rather hard for the EFSF to retain its own AAA credit rating which in turn, if dropped would make its own cost of borrowing increase. It was not all about S+P on Friday
though as talks in Greece, over its debt reduction programme collapsed, with the two sides unable to agree a deal. Greece looks as though it is rapidly edging nearer to the exit as it approaches default.
Although rumours of the downgrades were rampant all afternoon in Europe, the announcement came after EU equity markets had closed and Monday is likely to be pretty volatile. The equity markets fell hard, before paring losses and at the end of the day were generally down around 0.5% (DAX, FTSE, S&P). The CAC lost 3 points – 0.1%!, which seems pretty remarkable. Monday could be very different. It is the MLK -US holiday, Monday, so Asia and Europe will pretty much have to go it alone.
Technically who knows? The Euro closed above the previous 1.2660/65 support, having been to an intraday low of 1.2623. The charts suggest we are approaching Fibo support at 1.2590 and the divergence is hinting at some volatile range trading, with the possibility of some sharp bounces. If we get a meltdown in the EU though, no amount of technical analysis will hold the Euro and it is not difficult to see the possibility of an acceleration lower.
Going purely by what we can see in front of us though, 1.2625/1.2590 should provide decent support. Below here, 1.2445 is the next major target, being the March 09 low. The topside really depends on surprises that would cause a mass of short covering, which is possible given the CFTC stats for Friday which showed all time highs on short Euro futures
contracts. Resistance levels to watch are 1.2730, 1.2795 and then 1.2878 (Friday high). Further out
1.2993 is 23.6% of the fall from 1.4242/1.2623.
Economic data ahead includes the important China 4QGDP, EU CPI (Tues), US CPI (Thurs). Expect it to be volatile. Keep Stops tight. Good luck this week.
AUD/USD
Having done very little in Asia and early Europe, the Aud was all over the place late on Friday, once the downgrade rumours started to appear. A spike down to 1.0230 was followed by an impressive recovery to finish pretty much unchanged on the day against the US$. It was a different story against the Euro as the key reversal higher of Thursday was outdone by an even more impressive key reversal back down on Friday, making an all time low at one stage in Eur/ at Aud 1.2263 and looking as though the 1.2000 target may not be far away.
Back to the dollar, and the Aud continues to fill the ground between 1.0040 /1.0385, cited on
numerous occasions before. The converging support/resistance levels are easily seen and
although doubtful, it may yet test the 1.0380 level again. We may be in for a period of
choppy action between the 200DMA (purple - 1.0410) and the 100 DMA (yellow – 1.0180).
Early Monday will be nervous and sellers are likely to be in first thing, reacting to the EU
downgrades, but it won’t be one way traffic and sharp bounces are inevitable.
On the topside should 1.0380/1.04 level be seen this week, further resistances are at 1.0460– downtrend line - and at 1.0500, but don't expect to see the latter any time soon.
Support below 1.0180 is at 1.0150 – trendline – and at 1.0040, the previous low.
Although flows are coming into the Aud/Usd at the expense of Eur, Gbp & Chf, currently
propping it up at the 1.0300 level, the economic clouds are gathering ahead of Februarys RBA meeting.. To quote the weekend SMH “Australia is on the cusp of a white collar recession with insiders warning that thousands of jobs are at risk in the finance sector”. ANZ got the ball rolling there on Friday. It is hard to see much reason to buy the Aud on approaches to 1.0400, and I suspect that the next 200 point move will be to the downside. The only caveat to this is that the Aud has seemingly broken away – for the time being at least – from the risk trade that goes with the Euro. It is more closely aligned to the S&P, which like the Aud is choppy but remains within its recent range so monitor this index closely. I suspect the S&P might want to try 1300, fail and see a return to towards 1200, which would tie in with the Aud making an attempt on 1.0400, before returning to test 1.0040.
Economic data this week will include the 4Q China GDP /IP/Retail Sales (Tues) as well as
Australian Unemployment (Thurs). Be flexible. Being a US holiday will make for thin trading
conditions on Monday.
