AUD/USD: 0.7825EUR/USD: 1.0825The dollar had a choppy session on Friday, remaining generally on the defensive, with the chance of more of the same in the coming week as concerns over the recent flow of soft US data weighs on the likelihood of a Fed rate hike any time soon. Worries about a Greek default will keep the Euro from posting any serious gains though, and on Friday this and new trading regulations in China led to a steep selloff in the equities markets, with further losses looking possible. This week is going to be busy, starting today with the market digesting the surprise, weekend, Chinese RRR cut. Later on we get the German PPI, the Bundesbank Monthly Report and Chicago Fed Activity. The NZ CPI will kick things off, and then later in the session the RBA Governor, Stevens will be speaking at a Goldman Sachs function in Washington.
China has surprised the market with a late weekend cut to the RRR of 1% and an extra 0.5%-2.0% of RRR cuts for several qualified financial institutions. The Aud has gapped higher at the Monday open and has traded up to a high of 0.7844 in early NZ trade, a new trend high. It had traded to a high of 0.7842 (76.4% of 0.7937/0.7532) on Friday as the shorts got squeezed, before settling back below 0.7800 at 0.7770.
This week is going to be busy again, starting with a speech from RBA Governor Stevens in NY tonight, and to be followed tomorrow by the RBA Minutes and then the CPI data (exp 0.1%qq, 1.2%yy, Core 0.4%) on Wednesday. Later in the week sees the NAB Business Conditions/Confidence and the HSBC Flash China Mfg PMI (prev 49.6).
Most analysts appear to think that this short squeeze is a temporary affair before renewed weakness sets in, which the fundamentals suggest is likely to be the case. The OIS market is now pricing in a May 5 RBA rate cut at around 61%. Iron Ore is still very weak and finished at $49.59 p.t. with some 'experts' suggesting a decline to $35 pt.
Technically the 4 hour charts now appear to be rolling over to point lower although the dailies are still positive, so all up we can expect some choppy trade with a mildly positive bias, and buying dips seems to be the plan over the next session or two.
Any such dips will find buyers at Friday’s low at 0.7758 and then at the low seen after the sharp spike higher following last week's jobs numbers at 0.7731. Under here would return to 0.7700 and possibly to the 200 HMA at 0.7677 although I don’t think we are going to see that today.
On the topside 0.7800 and Friday’s 0.7842 will be the initial hurdles, above which would suggest a run towards 0.7884 (26 March high), 0.7904 (25 March high) and to the trend high at 0.7937.
Look for 0.7750/0.7870 to cover it today, with a mild bias to buying the dips.
Economic data highlights will include:
M: RBA Stevens Speech
T: RBA Minutes
W: Australian CPI, WBC Leading index, China Leading Index
T: NAB Business Conditions/Confidence, HSBC China Manufacturing PMI (Flash)
Jim LanglandsFX Charts www.fxchartsdaily.com
