There was no major change of focus in the market overnight although this week’s EUR rally has started to run out of steam, which isn’t overly surprising. The EU summit is not expected to make any major decisions or announcements and most of the overnight focus was on stock markets, after Google led equities lower. Comments from a PBOC adviser that CPI could fall below 1% next year would seem to be paving the way for some easing measures.
EUR/USD was unable to test reportedly heavy offers above 1.3150 and finally triggered trailing sell-stops below 1.3080. There has been little or no bounce since the low at 1.3055 was posted so we may indeed see some more downside in early Asian trade when the usual stop-loss hunting takes place. Initial technical support comes in around 1.3040 (see chart). Overall we can expect a day of consolidation after a very positive week for the EUR. Pairs like EUR/GBP continue to make solid gains.
The AUD/USD topped out just above 1.0400 but also looks to be in consolidation mode as the market decides its next move. Falling equity and metal prices affected risk sentiment and encouraged AUD selling but the comments from the PBOC helped the AUD cause. The speculative market remains short AUD overall, but it has good reasons to be short (China slowdown, falling rates), and I suspect that we will have a period of sideways trade before the next impulsive move develops. Support should be very solid near previously pivotal levels at 1.0290/1.0325 and resistance is at the overnight high near 1.0410 (see chart).
USD/JPY worked its way through offers near 79.25 but the expected flood of option-related stop-loss buying did not materialise. EUR/JPY topped out just above 104.00 but the short-term bull trend remains dominant.
Cable fell heavily after the market ran into heavy offers from US corporates above 1.6170. Stronger than expected retail sales, coming on the back of better jobs data, gave the GBP bulls some impetus in early European trade but this was reversed sharply in NY trade. Short-covering dip-buyers in EUR/GBP near .8110 were extremely solid and this pair looks set to test technical resistance levels at .8155 (see chart) and ultimately .8220. In fact this EUR/GBP up-trend has been one of the more resilient this week.
Good luck today and TGIF.