EUR/USD
With little new news to report and nothing out of Greece with regard to the debt
talks, the Euro has done pretty much as we suspected in remaining choppy, but
ultimately moving higher as the US$ broke the psychological 80.00 support in the
Dollar Index (DXY) and looking headed towards major support at 79.50. A German
auction that sold EUR 2.5bio of 12 month bills at an average yield of 0.07%, down
from 0.336% at the previous auction, helped the Euros cause. Interestingly, the
European bourses closed higher (0.5%), but the S+P has lost early gains and is
currently pretty much flat, despite the continuing Euro strength.
Having tested the downside in early Asia with a low of 1.2975, the Euro actually
rallied later in the day to the exact point of resistance that we mentioned
yesterday, 1.3053 (61.8% of 1.1875/1.4940), before retreating back towards current
levels.
Technically it looks now as though it wants to see if it can reach the top of the down
channel which currently lies at 1.3158. The shorter term charts though are pretty
overbought though so don't expect to see too much action from Asia. With the
Chinese New Year in full flow it will give the charts time to unwind. So the choppy
conditions are likely to continue.
The daily indicators are increasingly pointing higher, so for now I think the dips will
provide buying opportunities. Should we break 1.3053; the next point of resistance
1.3080 will act as a pivot for a potential move higher towards 1.3100 and then
1.3158.
To the downside, below the psychological support at 1.3000, stops now lie in the
1.2980 area (Fridays high) and below here 1.2950 will act as short term support.
1.2890 and then 1.2840 are additional levels that are unlikely to bother us today.
Later on the German/EU PMI figures will be the main point of focus. Till then it will
be quiet with dips likely to be well supported as the short covering continues.
AUD/USD
The Aud continued to make good gains and reached the upside target of 1.0570
(high 1.0572) before retreating to current levels as the US$ regained some of its
lost ground later in the day.
With the mild divergence building on the 4 hours charts it would not surprise
me to think that we might have seen the top in the Aud for now – at least
before tomorrow’s important CPI figure which expect a decline from 3.5% to
3.3% yoy. If seen, this would probably allow for the RBA to cut rates and would
tend to a lower Aud. A CPI number above 3.5% would possibly mean no chance
of a rate cut and would likely see the Aud head towards/above 1.0600. The RBA
won’t want this scenario and I suspect that the odds are for a 25bp cut.
Toyota’s job cut announcements yesterday in Victoria are being blamed on the
strength of the Aud and are a sign of things to come.
Technically then 1.0570 caps the topside for now, though a move above here
would lead on to 1.0615 and then 1.0700. Don't expect this - yet. The downside
should now see bids at 1.0490 and then below here at 1.0470 and 1.0440. The
lower levels should not be seen today. In the bigger picture 1.0380 provides
more medium term support.
Asia will be quiet again and then we have to wait and see if there is any
outcome from Greece that will provide the markets with direction. Today, look
for 1.0490/1.0570 to provide a guide or wait for the CPI. Thursday is Australia
Day Holiday.
