AUD at 85 cents per dollar, BRL prepares to rally

Forex News and Events

The AUD/USD broke below 85 cents today, months after RBA Governor Stevens pointed this level as healthy for Australian recovery. Aussie weakened below 200-dma against EUR and NZD. The NZ trade terms are due later today and should define whether it is time for the Antipodean cross to correct or extend weakness. In Switzerland, EUR/CHF made a downside attempt to 1.20165, yet recovered quickly above 1.2020. Finally in Brazil, the Real is better bid on expectations that Rousseff’s new finance team will likely get market approval.

Stevens’ 85 cents-dream becomes true

AUD/USD broke 0.85 this morning and rallied to 0.8480 on sub-0.85 stops. RBA Deputy Governor Lowe prepared ground for the decisive unwind yesterday. The 2.2% contraction in 3Q construction output finalized the move below 0.85. Decent option barriers trail below 0.8500/50 for today expiry and should keep the pressure heavy on AUD/USD. In the mid-run, a significant break of Fib 50% on 2008-2011 (0.8542) will shift support at 0.7944/0.8000 (Fib 38.2%/psychological level).

EUR/AUD significantly breaks above the 200-dma for the first time since 6-months, AUD/NZD leaves 200-dma (1.0916) and Fib 38.2% on Jul-Aug (1.0884) far behind. The antipodean pair is now at oversold territories (RSI at 29%), the NZ trading terms due later today should tell whether it is time for correction or more losses are sustainable. The NZ trade deficit is expected to narrow in October, while 12-month trade surplus should weaken to 183 million NZD from 648 million, suggests the consensus. Mixed read will most probably keep AUD/NZD below the 200-dma freshly broken. The 3-month cross currency basis shows preference for AUD has recently topped, further downside in AUD/NZD should develop.

EUR/CHF struggle to hold ground

The light SNB intervention made it straight: the SNB is behind the 1.20 floor and will not let it go no matter what comes out of November 30th referendum. The 1-month 25-delta risk reversals stabilize at about negative 160 points. It is time to load up on OTM calls with fading implied vols. The 1-month implied volatility eased to 3.50%, lowest in three weeks. For those who have faith in the SNB, simple option strategies should even be built at no cost. Vanilla put expiries abound at 1.2000/10, certainly not to stress the 1.20 floor yet to take advantage of premiums with little risk selling 1.20-strike puts. Quite lucrative strategy, indeed!

Following the 1.20090 hit on November 19th (the day we suspect the first SNB intervention), EUR/CHF extended gains slowly. At this point, the SNB doesn’t need to intervene in every downside attempt (as the one we saw in the European morning session); the consciousness of SNB determination to hold floor should be sufficient.

Rousseff will announce her new finance team on Nov 27th

The Real was better bid yesterday as the freshly re-elected President Rousseff will finally announce her new economic team on November 27th, after the Congress approves the new fiscal targets including discount on tax cuts and government spending, supportive of economic growth. Former Treasury Sec Joaquim Levy seems to be on the top of the list for the new finance minister.

Bids at 2.50 give support to USD/BRL as the uncertainties persist. Markets are waiting for good news, a market approval to Rousseff’s new finance team should trigger a relief rally and pull USD/BRL below 2.50s. First line of support is seen at 2.4752/61 (Fib 61.8% on Sep-Nov rally/50-dma), 2.4505 (Jan 29th high), 2.4278 (Fib 50%), then 2.3601/2.3804 (October 9th low/Fib 38.2%).

AUD/USD finally below 85 cents