AUD/USD: 0.7623EUR/USD: 1.0495The dollar shrugged off more weak US data (PPI, R/M Consumer Sentiment) on Friday as the dollar surged again, setting new trend highs against both the Euro and Cable. More of the same looks likely this week although there needs to be some caution ahead of the FOMC on Wednesday, and, given the recent data (NFP aside), it may be that the market is getting ahead of itself in hoping for the hint of any impending rate cut from the Fed at this week's meeting. If they sit on their hands and retain the need to be "patient" in the statement, there is going to be a very nasty squeeze of dollar longs later in the week. In the meantime, Mario Draghi is speaking today, which also sees the US New York State Empire Mfg Index, Capacity Utilisation, Industrial Production.
The Aud was unable to carry on above last Thursday’s 0.7730 high, where it was capped by the 200 HMA and gave up its gains under renewed pressure from the US$ and weak commodity prices, falling below the support generated by the 100 HMA at 0.7650, and heading to a low of 0.7610 before a partial recovery heading into the US close.
Aside from the RBA Minutes (Tues) there is no major local data this week although the RBA’s Debelle will speak on Wednesday and could well take the chance for another swing at the elevated level of the Aud. Beyond that, traders will be looking to the FOMC for the main guidance this week and if the Fed keeps market expectations for a hike intact, despite last week’s soft US data, the Aud will remain under heavy pressure and most likely will revisit last week’s 0.7559 low.
The immediate points to watch on the downside are at 0.7600 and then at 0.7560, below which would then hint at a run to the RBA’s stated target of 0.7500. I think we are eventually heading there and lower over time, below which there is not too much to hold the Aud ahead of 0.7414 (Oct 2010 low). Under here there is very strong support at around 0.7200 where two important Fibo levels are lining up (0.7210: 61.8% of 0.4773/1.1082 and 0.7180:76.4% of 0.6006/1.1082 ). I suspect that eventually 0.7000 will appear on the horizon (and eventually 0.6000!), but this is going to be some way off yet.
On the topside, the 100 HMA at 0.7650 will provide the immediate hurdle, above which minor trend resistance lies at 0.7665. Beyond here we could see a return to 0.7700 although somewhat doubtful today, I suspect. If wrong further sellers would arrive at last week’s high at 0.7730 and then at the pivotal 100 Month MA at 0.7760 but which currently looks a long way off.
Selling rallies for a continuation of the downtrend looks to be the plan, but with some caution as we approach the FOMC, in case the Fed do decide to sit on their hands, which would see a nasty squeeze higher.
Economic data highlights will include:
M: China FDI
T: New Vehicle Sales, RBA Minutes
W: WBC Leading Indicator, China House Price Index
T: RBA Bulletin
F: HSBC China Manufacturing PMI..
Jim LanglandsFX Charts www.fxchartsdaily.com
