EUR/USD
Gong xi fa cai, Gung hay fat choy, Sun nien fai lok and Happy Year of the Dragon to all!
The euro rose 2% last week, -squeezing the shorts, - underpinned by talk of progress in
negotiations between Greece and its creditors over the size of the losses to be inflicted
on private bond holders (up to 70%?),. The talks between the IIF (creditors) and the
Greek Government have been suspended over the weekend and time is running out
ahead of Mondays EU Finance Ministers meeting, at which the next tranche of the
bailout package of $130 billion is supposed to be ratified, in order to avoid a default.
Even if a deal is reached the problem has not gone away and doubts will soon re-emerge
over the capability of Greece to continue its austerity programme and repay the debts.
The ratings agencies could well downgrade Greece again, adding further pressure on the
EU and ECB.
Technically the Euro has so far fallen just short of the 1.3000 psychological target, which
also acts as Fibo resistance of the move down from 1.4242/1.2623. With the 4 hour
charts turning lower from an overbought situation it looks unlikely that we are going to
see the Euro move too much higher early in the week. Should we make upside progress
though, the next target above 1.3000 would be 1.3053 which acted as Fibo support on
the way down (61.8% of 1.1875/1.4940) and should now provide some resistance on the
way back up. It is hard to get excited about the Euro above 1.3000.
The downside is currently protected at short term trend support at 1.2890. Below here,
1.2847 and 1.2794 and 1.2730 provide Fibo support (of the rally from 1.2623/1.2985) ahead
of the low of last week at 1.2623 which stands ahead of important 1.2590 Fibo support.
Expect an eventual retest of this, and lower.
It could be a choppy week & much will depend on the outcome of the Greek news, but
there will be much disappointment if they fail to reach a suitable deal with the IIF.
This week’s economic highlights will be the FOMC (Wed – exp unchanged – with Fed
now giving forecasts as to possible future moves) and Durable Goods (Thur). Today sees
EU Consumer Confidence.
With Chinese NY & Australia day (Thurs) this week will be dead during Asian sessions.
AUD/USD
The Aud took out some big resistance late in the day Friday, pushing through the 1.0450 to
finish on its highs, just ahead of further resistance at 1.0492 (76.4% of 1.0750/0.9660). The
move has surprised me but I’d be taken aback to see gains much above here early in the
week, although you never know and 1.0570 looks to provide the next level of resistance.
Above here, 1.0750 begins to come into view and this would be a whole new ball game. In
the meantime look at 1.0430/1.0500 to provide the immediate trading range early in the
week, which will be somewhat thin given the absence of Asia and Australia on 26 Jan. While
“risk -on” is the name of the game for now, it could all change awfully quickly if things turn
sour in Europe and a swift return to the lower end of the range could easily be seen.. The
charts are not suggesting yet though that we are about to turn lower but I think this rally will
begin to fade at around 1.0500. The dailies are becoming mildly overbought but still hint at
the possibility of further upside momentum although only above 1.0570 would concern for
the greater down move that I suspect we will eventually see. In the near term, I suspect the
market is caught a bit short so dips are likely to see good buying interest and demand is
obviously strong, as can be seen following the reaction of the Aud after last week’s
employment numbers where it had every opportunity to head lower. The strong currency
though is not doing the export industry any good and as the economy slows the RBA may
need to cut rates in order to assist growth and bring the currency back down. We will have
to wait for February to see that outcome. I suspect we are in for some choppy trade this
week and 1.0400/1.0570 would look to cover it for now, with the very short term bias is to
buy dips. I’d be keeping SL very tight though as I don't like the idea of being caught long at
these levels.
We get Australian PPI on Monday , CPI Wednesday ahead of Australia Day Thursday in what
will be a thin week in the absence of China so moves could well be exaggerated.
On the crosses the Euro gained good ground and then promptly lost it against the Aud. The
indicators are conflicting and further choppy trade in the 1.23/1.24 region looks likely. Bias
to higher levels eventually and retest of 1.2460.
Gbp/Aud was relatively flat around 1.4850 and Aud /Jpy looks to have legs back above 80.00
with potential towards 81.50.
