AUD/USD: 0.9315EUR/USD: 1.3635The dollar eased back a little heading into the weekend after some soft US data put a break on the recent rally, with most currencies making minor gains. The week ahead holds plenty of opportunity for volatility, starting today with the global PMI's. The action will then crank up tomorrow, with the RBA leading off the first of the weeks central bank meetings, followed on Thursday by the ECB, where an easing seems pretty much priced in, and the BOE, where no change is expected. Friday sees the US Jobs data/NFP, and there is plenty else besides, including the EU CPI on Tuesday, so it could be a busy few days.
The Aud stuck reasonably closely to the expected range on Friday and having closed the week at 0.9300 should open with a reasonable firm bias today following the weekend release of the official China manufacturing PMI for May which came in at 50.8 (exp 50.7).
It is going to be a busy week for the Aud, starting today with the Services PMI and Building data, and then gearing up tomorrow for the release of the HSBC China manufacturing reading for smaller businesses, Australian Retail Sales and RBA I/R decision, at which no change is expected, with the market likely to focus on the wording of the statement. If the RBA tend to lean towards a dovish tone, then the current upward momentum may slow somewhat.
On the topside, we could see another test of Fridays 0.9328 high, although above here will become somewhat problematic in the short term as 0.9331 is going to be very stiff resistance (61.8% of 0.9408/0.9208/ Weekly cloud base). If/when this is taken out, the next target would be 0.9360 (76.4%) above which the descending trend resistance is at 0.9375. I don’t think we are heading above here for the time being, although it could come under pressure later in the week if the run of data generally hints towards increasing economic expansion or unless the RBA are more hawkish/less dovish than expected in their statement tomorrow.
Further out, if the Aud can ever make it back to 0.9400, we could then be in for a run up to 0.9460 (10 Apr high), and we should not lose sight of the chance of eventually seeing the long term SHS objective at around 0.0.9600. – don’t get too excited about this yet!
On the downside, the immediate support is now at around 0.9285, where the top of the daily cloud lies, below which could see a run back to the daily Tenkan at 0.9270. Below here would head back to congestion within the 0.9230/50 area, a break of which would see a decline towards the critical support at 0.9200. I don’t think we are heading down here today, but if 0.9200 ever does give way, it would invalidate our view that this is a retest of the neckline of the SHS that we have been monitoring for the last couple of months (red support line- chart below) and would head quickly towards 0.9175, where the 200 DMA lies. A break of this would potentially see a quick run towards 0.9155 (38.2% of 0.8660/0.9460), which is where the base of the channel lies. Below here would hint at an accelerated run towards 0.0.9115 (100 DMA).
For today, I suspect the market will keep its powder reasonably dry ahead of tomorrow’s major data download and suspect that 0.9280/0.9330 may cover it. It is a Chinese and NZ holiday which should diminish interest in Asia.
As we said last week, keep a close eye on commodity prices, particularly the price of iron ore, now down at $91.80 per tonne which could put a bit of a lid on further upside for the Aud. Mining shares are already feeling the heat. If Gold continues to sag, that too will eventually reflect in the value of the Aud.
Economic data highlights will include:
M: Services PMI, Building Permits, China holiday
T: Current Account, Retail Sales, RBA IR Decision/Statement, HSBC China Mfg PMI, China Non-Mfg Index
W: TD Inflation, GDP
T: Trade Balance
Jim LanglandsFX Charts www.fxcharts.com.au
