AUD/USD Pre RBA Levels

AUD/USD Pre RBA Levels

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AUD/USD Pre RBA Levels

The Australian dollar will be in focus tonight with PMIs, retail sales and the Reserve Bank of Australia’s monetary policy announcement on the calendar. We are looking for slightly stronger data and unchanged policy guidance but that may not do much for the currency. Taking a look at how Australia’s economy performed since the last meeting, first and foremost, there were fewer than usual economic reports released between monetary policy announcements. Retail sales, the trade balance and Q3 GDP for example won’t be shared until the day of or after the RBA rate decision. Since the November meeting, consumer confidence has fallen, inflation expectations declined and housing activity slowed. Labor market indicators were mixed but for the most part the RBA is happy with the jobs market. Business confidence and manufacturing activity also improved as iron ore prices rocketed higher. These improvements will encourage the RBA to maintain their neutral policy stance while preserving their view that inflation will remain low for some time. Since we don’t expect anything new from the central bank, the impact on AUD should be limited. AUD/USD is still in a downtrend but we don’t believe that the RBA announcement will take the pair out of its .7532 to .7660 range – the catalyst will either be Australian data (retail sales and GDP) or U.S. data.

Technically AUD/USD needs to close firmly above .7650 in order to shake off the downtrend. Even then, there’s resistance between .7680 and .7720. However by the same token, there’s also significant support at .7530. A break below that level could precipitate a stronger move lower down to 74 cents.

Euro – Back to pre ECB Lows?

Euro – Back to pre ECB Lows?

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The euro started the year on the wrong foot making a massive wick yesterday and dropping further today as it is down by more that two big figures in 2 days. The pair may be finally starting to respond to interest rate differential pressures as the short squeeze post ECB finally runs out of gas.

The spread between Treasuries and bunds continues to hold and as long as it does not not compress much the euro will likely remain under pressure as basic fundamental flows finally take over from technical factors that have dominated trade for the past month. The key to the near term direction of the pair will be this Friday’s NFPs. If the market sees another blockbuster report of 250,000 or more it will likely begin to price further rate hikes by the Fed which in turn will widen the Treasury/Bund spread and drive the pair lower. If however the labor numbers are weak its back to the 1.0900s for the unit.