EUR/USD
The appetite for risk assets continued today, following on from the Feds pledge
of the previous day to keep rates at current low levels until late 2014. A
Successful Italian bond auction added to the more enthusiastic tone, where the
10 year yield moved towards 6% from previous levels of 7%. Things turned
around a little, later in the session following weaker US data.
European equities all closed strongly higher, hitting a 6 month high (CAC +1.8%,
CAC +1.5%) and the Euro enjoyed another good day trading up to as high as
1.3183, before drifting back to current levels to be more or less unchanged
from yesterday. US equities are slightly lower (S+P, – 0.75%) following soft new
home sales data.
Technically it looks as though we may eventually be heading towards 1.3240
(38.2% of 1.4242/1.2623), although we have a lot of work to do if we are to get
there. The 4 hour charts are, as can be seen, are extremely overbought and it
would not surprise to see dips towards 1.3000 as they unwind themselves a
little.
The daily charts are still pointing strongly higher with the next major point of
resistance not seen until 1.3350. They are not at overbought levels and the
general momentum looks to continue higher, but the price action will remain
choppy.
In the short term I suspect the 1.3180/1.3080 range will cover it with dips
towards 1.3000 quite a possibility. The shorts though, are being slowly
squeezed and dips should be well supported.
Today will be light on EU data and from the US we will get the Q4 GDP (exp
+3%) and Rts/Michigan Consumer Sentiment Index.
AUD/USD
The Aud rallied strongly in Europe to almost touch the top of the channel
before retreating to the levels of this time yesterday. As it happened the Aud
fell slightly short of the ideal 1.0693 target, seeing a session high of 1.0688.
Today looks as though it will be pretty much rangebound. Much of Australia is
enjoying a long weekend and Asia is still on New Year holiday so 1.0600/50
should cover the next few hours. In the short term the downside looks more
vulnerable so a push below 1.0600 towards 1.0580 in thin conditions would not
surprise.
Further out, flexibility is required and although the Aud looks as though it might
want to test the important 1.0750/65 area, it is becoming overbought and any
change in risk sentiment would quickly see the recent gains disappear.
We will have to wait until Europe opens to see any real action, but that session
has recently been increasingly enthusiastic on buying the Aud, so further tests
of the upside are possible.
I have no real view either way at these levels. Although somewhat surprised
that we have nearly reached 1.0700 at all, I can see that the market might want
to move higher. Equally I am very wary that the market might be setting itself
up for a nasty fall, so think stops should be kept very tight either way, but
particularly on long positions.
