AUD/USD: 0.7770EUR/USD: 1.0825The dollar came under heavy pressure again on Friday, with NY sending the EU majors back towards last Thursday's highs as traders continue to digest the Feds mildly more dovish than expected outlook for the US economy. Commodities rallied strongly, giving a reprieve to the commodity bloc currencies, and equities had a good session, with the FTSE making an all time high, reaching 7000. This week will be largely dominated by US data, with the CPI, Durable Goods and GDP all due. Elsewhere the main focus will be on the flash global PMI's, the UK CPI/PPI and assorted secondary data from the various centres. It will be a busy one, and a nimble stance will be required. The US CPI (Tues )will be of key importance after the FOMC statement increased the focus on the inflation side of the Fed's mandate.
The Aud staged a strong recovery on Friday on the back of a weaker US$ and bond yields, thus enabling a decent rally in commodities, pushing the Aud to a high of 0.7802, and which now appears to be making a serious attempt at a sustained break of the top of the descending channel for a potential run to higher levels, at least in the near term.
This week will be driven by international flows, largely on the back of the US data due to be released in the next few days, stating with tomorrows CPI.
Technically, the indicators do suggest that the recovery could have a bit more in it, and a retest of 0.7800 would not now surprise. Above here would see a further squeeze towards last week’s spike to 0.7846, beyond which would suggest a run towards 0.7900 and the 26 Feb 0.7912. Beyond here would see a bigger squeeze, with the potential to revisit the Fibo resistance at 0.8010 (61.8% of 0.8294/0.7559), although it is too early to think of it at this stage.
Although it does currently look bid, from these levels it is hard to see too much upside for the Aud unless there is another major selloff in the US$ and Friday’s close, right on the 100 Month MA at 0.7775 may well continue to act as pivot for a while to come. The RBA want the currency lower and a rate hike appears to be on the way in May, if not April, with the only impediment seeming to be the overheated real estate sector. The Iron Ore price (which accounts for every $1 in $5 export dollars) appears headed for US$50 pt (currently around US$54 pt) and possibly lower, putting material pressure on the GDP, and with unemployment probably trending higher, a (substantially) lower Aud$ would appear to be on its way in the months ahead.
If and when the Aud does head lower, which may take a while, the support levels to watch are now at 0.7730 (38.2% of 0.7610/0.7802), 0.7705 (50%) and 0.7683 (61.8%). The 100/200 HMA’s lie at close to 0.7560 below which would head back to the stronger support seen between 0.7590/0.7610.
Further out, the recent low at 0.7559 would provide strong support, a break of 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.
The plan seems to be for the Aud to be headed a bit higher in the near term although I still prefer to look for levels to sell it for the longer term decline that I think we are going to see over the next few months.
Economic data highlights will include:
M: CB Leading Indicator, CB China Leading index, RBA Edey Speech
T: HSBC China Manufacturing PMI
W: Financial Stability Review
T: HIA New Home Sales
Jim LanglandsFX Charts www.fxchartsdaily.com
