AUD/USD: 0.8660EUR/USD: 1.2480Friday’s miss in the NFP had the dollar and bond yields under some downside pressure going into the weekend despite the US unemployment rate falling to 5.8%, the lowest level in 6 years, suggesting an improvement in Q4 GDP. Aside from today’s China CPI, PPI, and EU Sentix, the first half of the coming week sees little major data, so it may be choppy and rather directionless over the next couple of days, especially given tomorrows Remembrance/ Veterans Day holidays. Thursday/Friday will see most of the action, with some individual EU CPI readings and the EU GDP due. Elsewhere, today will see some Australian Housing data but that is about it.
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The Aud recovered well from the trend low of 0.8540 to finish the week at 0.8635 and should open not too far away on Monday after the weekend release of the Chinese October Trade data. The headline number of US$ +45.41 bio (v USD +42.3 bio expected) was pretty solid but the decline in both imports (+4.6% yy vs +7% previous) and exports (+11.6 % yy v +15.3% previous) will have markets trading on a cautious note on Monday, concerned about what all this means for the global growth outlook.
The Aud closed at 0.8635, just below the 100 HMA at 0.8645. It looks as though it may want to try to break back into the channel that previously contained it, where the base is at 0.8660, although I think this may prove difficult, but if the US$ does stay under pressure, then we could see a jump, beyond 0.8660 and on towards 0.8700 and possibly to the 200 HMA at 0.8720. I don’t really see it happening, but there is a fair bit of data out today to push the Aud around, headed by the Chinese CPI, so it could be a busy session and the short term indicators still point a little higher.
Further out though, I think there is still plenty of room to the downside. 0.8600 may support it in the near term, although a weak Chinese CPI (exp 1.6% yy, 0.1% mm) would quickly alter that theory and would have the Aud quickly retesting 0.8570 and possibly the 0.8540 low. This will again provide very strong support, being both 50% of the move from 0.6006/1.1082 and also the base of the monthly cloud. A break of this, and a November close below it would have very bearish implications, for a test of the major channel base at around 0.8474 and then the May 2010 lows at 0.8066. As I have said before, I think the Aud is building a major head shoulder formation which over the next couple of years will see the Aud back at 0.6000. See the chart below. Don’t panic, it won’t happen this week!
Economic data highlights will include:
M: Australian Home Loans, Investment Lending, China CPI, PPI, New Loans
T: House Price Index, NAB Business Confidence/Conditions
W: Wage Price Index, WBC Consumer Confidence
T: Consumer Inflation Expectation, China Retail Sales, Industrial Production, Urban Investment
F:.
Jim LanglandsFX Charts www.fxchartsdaily.com
