EUR/USD
Surprisingly, the Euro stayed rock solid in the European session after the German
Retail Sales came in at -1.4% m/m, -0.9% y/y, completely blowing away the
expectations of +0.9%, +1.4% respectively. Sounds like some new economists are
needed if that is as close as they can get with their predictions! On the positive side
though, Euro Group’s President Juncker hinted that an accord between Greece and
the private creditors may be possible by end of week and we still live in hope of a
resolution, sooner rather than later. Things turned around later in the session as
risk was unwound on the growing concern over the situation in Portugal and on the
soft US data. The Euro came off quite steeply from its 1.3217 high to trade as low as
1.3041, having broken the recent uptrend support line, before rebounding to
current levels. The dollar rallied as the market moved away from risk assets and
sought some safe haven in US Treasuries.
The Euro thus remains in its recent whippy range of the last couple of days and we
now have the possibility of a Head/Shoulder top, as can be seen on the hourly
chart. A move back above 1.3100 should negate this possibility, but right now the
Euro is sitting right on the neckline and if this turns out to be the case, then has a
target of 1.2925. The 4 hour charts are telling us that this is the direction that we
are likely to head in, although the hourlies are becoming mildly oversold and the
dailies continue to point higher. This leads me to think that while we may well test
the down side it is going to be a choppy ride.
On the other side of the coin, a break back above 1.3100 would lead to more range
trading and we should therefore expect more 1.3050/1.3200.
We have a fair bit of data later on, starting with the China PMI. Then we have the
German/EU PMI EU CPI and the US ADP and ISM figures, so plenty of room for
volatility during the session, although Asia will initially do its normal thing – not
much – at least until the China data.
AUD/USD
The Aud maintained good strength into Europe although this dissipated later on
as the weak US data saw a return to more safe haven assets such as US
Treasuries. The US$ buying, saw the Aud move from 1.0684 down to 1.0585
before a rebound to levels pretty much unchanged from yesterday.
The market should be reasonably quiet until the data later on which includes
the local House Price Index and then the China PMI.
The Aud remains firmly within the upchannel where the current parameters are
1.0445/1.0760. Within this 1.0520/1.0685 provide guides as to the range. A
break of either side will probably see a continuation.
The 4 hourly charts are looking as though they are running out of steam on the
topside, while the dailies are reaching level where they are quite overbought. It
looks as though we may now have a double top in the Aud and it would not
surprise me to see a test to the downside at some stage during the session, but
dips have been very well supported over the last few sessions and I would
expect this to remain the case.
On the topside, should we see a move above 1.0685 (doubtful today), there are
some serious stops building above 1.0750, all the way up to above 1.0800, so
if/when we see it, expect that to be a pretty sharp move.
Today, use 1.0570/1.0640 as an early guide and take direction from the data,
with mild downside action favoured.
There is a fair bit of data out of Europe/US later on that will provide plenty of
opportunity for volatility.
