No reprieve for the Euro (or the $Aud) ahead of this week's FOMC. Greek election result, IFO today.

The Euro took another beating on Friday as it heads its way quickly towards 1.10. The Aud fared little better and it looks as though the RBA wish for a 0.7500 Aud is not so far away. This weeks highlights will come via the FOMC Meeting (Wed) and US GDP(Friday). There is plenty else besides, starting today with the BOJ Minutes and then later on, the German IFO and EU Retail Sales, to be followed from the US by the flash Services/Composite PMI & Dallas Fed Mfg Survey . Today is Australia Day, so the Aud may get a bit of a reprieve ahead of Wednesday’s CPI.


The Greek election results are still coming in. At this point Syriza have gained power and the only question appears to be whether they will be able to form a government in their own right or whether they will need to align themselves with one of the other parties. According to the BBC it is down to 1 seat as to whether they will have an outright majority or not. The effect has seen the Euro open a little lower on Monday morning, currently at around 1.1180.


Being Australia Day, today’s report is limited to the major currency pairs and crosses. Normal service resumes tomorrow.

EUR/USD: 1.1201

Greek Election Result. Syriza have won, but whether they have an overall majority remains to be seen. This will develop over the course of the day and is likely to keep the Euro under pressure for much of the session, so stay nimble!

The Euro continued its sharp decline on Friday, – not helped by falling EZ bond yields following the ECB’s QE announcement or by the soft French/ German Mfg PMI’s, – in falling to a low of  1.1115 in early NY trade before a bounce late in the day to close back at 1.1200.

There is plenty of data out this week to put further pressure on the Euro, although the major focus will be on the FOMC decision where no change is expected and there is no press conference scheduled. The Q4 GDP will then be released on Friday.

With the Euro now down at these levels it would appear that after having fallen from around 1.4000 over the last 9 months, that much of the move may be priced in with regards to the EZ QE. However at some stage later this year (albeit not at this week’s meeting) the general expectation is that the Fed will start hiking rates , and while the daily charts are now oversold, which could signal a near term bounce, the divergence of monetary policies between the EZ and US should continue weighing on the Euro in the long term.

Today’s highlight, aside from the reaction to the Greek election result, will be the release of the German IFO, which is likely to be very strong on the back of hopes that the weak Euro is going to provide a significant boost to the German economy, and could cause it to spike higher in the short term so watch out for that and also for the EU Retail Sales. Later on, from the US, we get the  US Flash Services/Composite PMI, Dallas Fed Mfg Survey.

Technically, below Friday’s low, the next obvious target is at 1.1000, where many analysts had previously been looking for a 2015 low, although the next realistic technical level is not seen until the September 2003 low at 1.0759, beyond which we are going to zero-in, eventually, on parity. At risk of sounding like a broken record, I have been saying over the last few months that the charts suggest that we are going to eventually head to 0.8000 although such a strong dollar would completely destroy US export markets, so it may well pull up ahead of that although it certainly remains the technical target , as per the monthly chart below..

The topside is going to see the odd short squeeze, which could take us back above the important Fibo level at 1.1227 (61.8% of 0.8225/1.6037), to 1.1300 and then to some minor Fibo resistances at 1.1315 and possibly to 1.1440, although right now this looks unlikely. If we do see a rally, selling bounces remains the name of the game, with a SL left above the descending trend resistance currently at 1.1550.

Economic data highlights will include:

M: Greek Election Result, Eurogroup Meeting, German IFO, EU Retail Sales, US Flash Services/Composite PMI, Dallas Fed Mfg Survey

T: German Retail Sales, US Durable Goods Orders, Consumer Confidence, New Home Sales, Case/Schiller Home Price Index, Richmond Fed Mfg Index

W: German Consumer Confidence, FOMC Decision/MP Statement

T: German Unemployment, ECB Monthly Report, EU Consumer Confidence, Business Climate, Industrial Confidence, Services Sentiment, US Pending Home sales, Jobless Claims

F: EU Provisional CPI, Unemployment, US Core Personal Consumption, GDP, Chicago Purchasing managers Index, Rts/Michigan Consumer Sentiment Index.

Meta Trader – AxiTrader   EUR/USD: 4 Hour

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USD/JPY: 117.76

US$Jpy remains choppy, and after making an early attempt on Friday to take out the offers above 118.80, the dollar got vertigo and retreated to finish back below 118.00, having reached a session low of 117.53.

More choppy trade looks likely over the next few days; and by the look of the Yen crosses, a mild downside bias would seem in play.

I don’t think that we are heading too far in either direction right now though while the major focus lies elsewhere, but a test of Fridays’ low and then of the rising trend support, currently at 116.80 would not really surprise. Below that would then allow a run towards 116.00 and possibly to the Fibo support at 115.50 (38.2% of 105.18/121.84), and which if seen would be a good area to start picking up some dollars.

The topside looks pretty well capped at around 118.80 for now, although a break of 119.00 would then signal further gains towards the recent highs at 119.30 , beyond which 119.95 (8 Jan high) will come into view. Further out look for a run towards 120.00 above which will suggest further gains towards the minor triple top at around 120.75. Eventually I suspect that we are heading towards 121.00, but not yet. If/when we do,  do so, further advances towards the trend high at 121.85, above which would see a run towards the 15 July 2007 high at 122.42. In the longer term, the target of 124.13 (17 June 2007 high) would appear on the horizon but will take time given the resistance levels sitting in between.

Economic data highlights will include:

M: BOJ Minutes, Japan Trade Balance

T:

W:

T: Industrial Production, Retail Sales/Trade

F: CPI, Unemployment, Housing Starts, Construction Orders..

Meta Trader – AxiTrader    USD/JPY: 4 Hour

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GBP/USD: 1.4986

Cable remained under pressure on Friday as the US$ continued to make good against the Euro, but remained underpinned above 1.4950, partly by the better than expected UK Retail Sales and partly by flows into Cable from the Euro, where the cross again headed sharply lower.

The pressure looks set to remain to the downside, as long as the dollar maintains its strength, although tomorrows UK provisional Q4 GDP could see a reversal to the high side if it comes out above the expected 0.6%qq/2.8%yy.

In the meantime, cable should now stay below the breakdown level, seen at 1.5075, above which could see a return to 1.5105 (23.6% of 1.5620/1.4950) the 200 HMA at 1.5140 and then possibly to 1.5200 (38.2% of 1.5620/1.4950).

The downside will find the initial bids, below 1.4950, at 1.4915 (61.8% of 1.3502/1.7191) and then, some way off at the July 2013 low at 1.4813. Below this could get ugly as there is not too much to hold Cable up ahead of the 76.4% Fibo level (1.3502/1.7191) at 1.4375.

Economic data highlights will include:

M:

T: UK GDP

W:

T: CBI Distributive Trade Survey

F: Mortgage Approvals, Nett Lending.

Meta Trader – AxiTrader    GBP/USD: 4 Hour

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AUD/USD: 0.7910

The Aud got a real pasting on Friday, and after taking out 0.8000 it remained heavy for much of the session, despite a brief, minor squeeze back to 0.8050, trading downs to around the lows of 0.7950 by the time NY walked in. US traders sold it straight away, on the back of the weak Euro and the sharp sell-off in Copper (-3%), taking the Aud down to a spike low of 0.7880, before a bounce allowed it to close, sitting precariously above 0.7900.

Today is the Australia Day Holiday and liquidity will be thin and driven by offshore interests. The major focus this week will be on the outcome of the FOMC Meeting  and Australian CPI release, the latter of which will be key to the thoughts of the RBA at next Tuesday’s meeting. Most analysts appear to think the RBA will remain on hold , but some analysts think the RBA will cut by 25bp. Westpac in particular  seem pretty adamant that they will cut, and they may have a point following the surprise cut last week by the BoC, although personally, I suspect that the current sharp decline in the Aud, which in itself is akin to a rate cut, may see the RBA err on the side of caution in order to keep their firepower up their sleeve.

Whatever happens, I think the Aud is heading lower, either sooner or later, and below Friday’s low would target 0.7765 (200 Month MA), the July 2009 low at 0.7700 and beyond,  possibly to the RBA’s stated target at 0.7500, albeit not for a while. As I have said over the last 6 months, the technical target looks to me to be 0.6000 (monthly chart below)- a long way off still, but we are heading in the right direction!!

The topside will now see sellers at 0.7950 and then at 0.8000 and at 0.8015. The 100 HMA is far off at 0.8100 at present, although I don’t think we are going anywhere close, but if we do see a decent rally, I would still be looking to sell into it, with a SL placed above the 200 HMA, currently  at  0.8150 but heading lower.

Economic data highlights will include:

M: Australia Day

T: WBC Leading Index, NAB Business Confidence/Conditions, China Leading Economic Index

W: CPI

T: Import/Export Price Index

F: Private Sector Credit, PPI.

Meta Trader – AxiTrader     AUD/USD: 4 Hour

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NZD/USD: 0.7477

The Kiwi had a tough week last week, falling by 4.4% in finishing on its lows, with apparently more losses looking likely ahead this week. The catalyst for this could be Wednesday’s RBNZ decision, which conveniently comes an hour after the Fed’s FOMC decision, and thus it is going to be very volatile at that time so care should be taken at that time.

New Zealand rates fell heavily last week, particularly in the wake of the Bank of Canada rate cut, and if the RBNZ strike a more dovish tone on Wednesday, – while at the same time the Fed appear to be more hawkish in their own outlook -, the Kiwi could head well below the current important Fibo support (0.7430 : 61.8% of 0.6560/0.8842) and would then target the Nov 2011 low, at 0.7370. Beyond that, there is only minor support (20 Mar 2011 low: 0.7290) to hold the Kiwi up ahead of the 76.4% Fibo support and 17  Mar 2011 low seen at 0.7115.

With the longer term indicators pointing lower, any upside moves would seem temporary and likely to offer a sell opportunity, but the 4 hour charts are heavily oversold, so bounces are possible, where the initial target would be at minor descending trend resistance at around 0.7465. A break of this could then head towards 0.7500 and even towards the first minor Fibo resistance, seen at 0.7537 (23.6% of 0.7890/0.7431). I don’t think we are headed up here is a hurry, but beyond this would possibly take a look at the 38.2% level at 0.7605.

Look to sell rallies, but be aware that the Kiwi and the Aud could see some underlying support via the cross (EurNzd, EurAud), if the Euro falls apart following the Greek election.

Economic data highlights will include:

M:

T:

W: RBNZ Interest Rate Decision/MP Statement, Trade Balance

T:

F: Building Permits.

Meta Trader – AxiTrader     NZD/USD: Daily

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EURJPY: 132.00

EURJPY: The cross did as we expected last week and continued its sharp decline from the opening levels around 135.80, trading within 20 points of our take profit target of 130.70 (61.8% of 119.10/149.77) by collapsing to 130.90 on Friday before a late  bounce to 132.40. The downtrend shows no real sign of reversing although the short term charts are oversold show some indication of needing to consolidate before the decline can continue.

If so, sellers would arrive at minor Fibo levels at 133.30, 134.05 and 134.80, which all lie ahead of the descending trend resistance/200 HMA at around 135.80. Above here would indicate that a base is in place, although I don’t see it happening.

On the downside, I think we are likely to eventually return to Friday’s 130.90 low and to the Fibo support at 130.70. A break of this would suggest a move towards 128.50 (38.2% of 94.10/149.77) and then to 126.40 (76.4% of 119.74/149.77). Selling strength towards 134/134.75 seems to be the plan, with a SL placed above 135.00..

Meta Trader – AxiTrader

...

AUDJPY: 93.15

AUDJPY: After a few weeks of volatile trade, using 96.50 as a rough pivot, the cross headed sharply lower on Friday and looks as though it has further downside ahead after closing the week below the rising trend support seen at 93.70. If so, the next stop will be 92.70 (61.8% of 86.40/102.84) and then at the 16 Oct low at 91.76. Under here sees further losses towards the March 2014 low at 91.15 and the 76.4% Fibo support at 90.25.

Above 93.70, the topside will find sellers at the minor Fibo levels at 94.05, 94.70, and at 95.20. I would be looking to sell into any near term strength, with a SL placed above the 100/200 HMA’s currently seen at 95.85, preferably above 96.00.

Meta Trader – AxiTrader

..

EURGBP: 0.7470

EURGBP: EurGbp collapsed again last week, accelerating on Friday trading in to a low of 0.7428, reaching the target at the Nov 1993 low at 0.7451 (Sterling/EMS equivalent). As a medium term view, it now looks to be headed towards  the 200 Month MA at 0.7355 and possibly to the major Fibo support at 0.7250 (61.8% of 0.5680/0.9802).We may see a partial recovery this week, to allow the short term charts to recover, in which case the points to watch are at minor Fibo levels at 0.7535, 0.7570 and 0.7600. I think that layering into a short position at these levels, with a SL above the 200 HMA, currently at 0.7660, is probably the way to go.Meta Trader – AxiTrader

..

GBPAUD: 1.8950

GBPAUD: The cross was pretty choppy for much of last week, but headed sharply higher on Friday, reaching 1.8997, as the Aud came under heavy pressure on all fronts after breaking down through US$0.8000. It looks as though we are going to have generally more choppy trade, but with an upside bias, in which case buying dips towards minor Fibo levels at 1.8840 and 1.8750 looks t be the plan, in anticipation of a move back towards the highs and then beyond 1.9000 towards 1.9075 (76.4% of 1.9306/1.8340). Below 1.8750 would see a continuation of the consolidation and could eventuate in a return towards 1.8600, s keep stops on long positions reasonably tight below 1.8750.Meta Trader – AxiTrader

...

DXY: 94.97

The DXY motored north at the end of last week and even came within a whisker of reaching our next medium term target at 95.85 (50% pivot of 121.02/70.69) in making a high of 95.48, before closing the week at 95.00.

The monthly charts show no sign of the trend slowing and if 95.79 can be overcome, then look for further gains towards the August 20023 high at 99.49 and then to the major 61.8% target of the fall from 120.98/70.61 (July 2001/March 2008) at 101.79.

In the shorter term, this move is beginning to look like a bit of a blow-off top, so if we do see a correction, it could be rather sharp and there is not too much to stop the index heading back towards the minor rising trend support, currently at around 92.50, below which the first Fibo supports are not seen until 91.52 and 89.10 (23.6%/38.2% of 78.87/95.42). In between there, the 200 month MA lines up at 89.75.

I don’t really think  we see it reversing all that sharply, although raising stops on long dollar positions would be wise, and I would be using dips in the dollar (DXY) to add to long positions, but if we see the DXY below 89.00, then I think we may be in for a deeper correction. In the mean time stops should be placed at just below 92.00.

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DXY: Monthly

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