AUD/USD: 0.7040EUR/USD: 1.1225Markets steadied a little today following the recent extreme volatility, with both equities and oil reversing some of the previous sessions losses in heading higher, allowing the US$ to grind out a minor rally in continuing its recovery against its European counterparts. Today's main risk event will be the ECB Meeting, where Mario Draghi's press conference will be in the cross-hairs, but with no change expected in monetary policy. Otherwise, markets will look to the Australian Retail Sales and the Trade Balance for another opportunity to put the Aud under pressure, while later on, the EU/US Markit Services/Composite PMIs, EU Retail Sales, US Trade Balance, ISM Non-Mfg and Jobless Claims are all due. It could be a choppy one, without too much direction as traders stand aside while waiting for tomorrows event risk - the US Jobs/NFP data.
The soft GDP data did nothing to assist the Aud yesterday in helping to push it to a new 6 year low of 0.6981, before a turnaround later in the day, as risk sentiment improved on the back of firmer US stocks and a stronger oil price, allowing the Aud to finish the US session at 0.7030.
Today’s main event for the domestic market will be the AIG Services PMI, Trade Balance (exp -3.1 bio) and Retail Sales (exp 0.4% mm July), with a generally weak outcome likely to see another test of 0.7000 and possibly lower, towards the 0.6980 lows. Below this would open the way for a more concerted test of the downside, where the April 2009 low at 0.6855 is the next realistic support although this is some way off at this stage.
The topside, will again see offers at 0.7050 (session high; 0.7048), 0.7070 and at 0.7100, beyond which, further gains could eventually take the Aud back to the 15 year trend line that was broken at the end of the month at 0.7130 (see monthly chart below). Above here looks unlikely but it is possible that we could yet see a squeeze back to the top of the descending wedge formation, currently at around 0.7200.
The 4 hour momentum indicators hint at some minor bullish divergence, so a bit of topside squeeze does seem a possibility, but the overall idea of selling into strength for a continuation of the medium/long term downtrend remains intact. A solid NFP reading tomorrow would most likely take out the 0.7000 level and could be the catalyst to send the Aud sharply lower – time will tell.
Economic data highlights will include:
AIG Services PMI, Trade Balance, Retail Sales
Jim LanglandsFX Charts
