| Daily Forex Fundamentals | Written by AC-Markets | Feb 02 10 11:05 GMT | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
News and Events:The RBA stunned the market by holding their cash rate steady at 3.75% and not hiking another 25bp, as was widely expected (roughly 80%). The AUD immediately collapsed, as traders anticipated eroding yield spread. The AUDUSD shed nearly one and a half big figures, trading from 0.8927 to 0.8780. However, the RBA's accompanying statement clearly indicates that rates might go higher in the future. And that is what the traders are betting on, as near-term bank bill futures rallied by around 30bps. The RBA mentioned persistent concerns over global credit conditions, strong Aussie, growing sovereign credit risk and China's probable tightening as reasons for the temporary pause. The central bank also wanted to monitor the effect of the last three hikes, as information was still 'limited'. Deputy Governor Battellino stated in December that 'since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.' The fact that so many bright, well-trained analysts completely misread the intentions of this central bank highlighted the fact that monetary policy is far from being certain. This clearly calls into question one of the main FX tenets, that the Fed will lead the ECB in normalizing policy and therefore the current EURUSD depreciate is warranted (when combined with fears over struggling EU members). But back to the fate of the AUD, first we believe that the China tighten story is overdone and believe China / Asia will power on through 2010. And second, the economic data in Australia, including an unemployment rate that was peaking at 6.0%, will remain constructive, while inflation is running above its 2-3% inflation target band. Given our expectations explained above, we believe the RBA will be forced to raise rates by 25bp in March and end 2010 around 5.25%, which means the AUD sell-off was merely a knee-jerk reaction and the AUD should be well supported moving forward. For today, the lack of first tier data will keep FX markets range-bound with majors in major pairs in a consolidation mode, ahead of Thursday's BOE & ECB and Friday's critical NFP.
Today Key Issues:
The Risk Today:EurUsd Very little change in EURUSD's picture today, with consolidation likely to be the name of the game between 1.3855 and 1.4000 in the short term. Our bias remains to play this pair from the short side and sell smalls towards 1.4000, but given the considerable sell-off since the beginning of December and the impending risk event (ECB meeting and press conference on Thursday), expect some players to lighten up on risk in case of Trichet fireworks. Looking at the larger picture it is clear that the bear trend remains the dominant driver, and should we be lucky enough to get a bounce towards 1.4190, expect plenty of selling interest. The breakdown of the 12 month uptrend back in December has been extremely orderly, and the target of the bear flag pattern carved out in January around 1.3600 has still not been reached, suggesting further room for this move below. GbpUsd GBPUSD took a tumble down through the lower bound of the 2 week downtrend channel yesterday as frayed nerves ahead of Thursday's BoE took their toll and GBPUSD bears found buyers in short supply. The low of 1.5851 was within 20 pips of critical downside support and 30 Dec lows of 1.5833; but the pair bounced strongly to close back within the channel even after the post-ISM wave of USD strength. There is sufficient uncertainty in the predicted outcome of Thursday's BoE meeting to expect a choppy range between 1.5833 lows and the 1.6080 area of major supply between now andthe MPC decision, but if we do see any bounces toward 1.6080 we would look to re-short with a stop just above the 50-day moving average resistance (1.6147), and wait for a retest of 1.5833 and thereafter 1.5707. UsdJpy We got another massive upside surprise in US data yesterday with the ISM Manufacturing posting a whopping 58.4 in January; but frustratingly USDJPY is still failing to breach the stubborn 91.00 resistance that also thwarted the rally on Friday. USDJPY bulls can at least take some solace in the fact that we finally got a daily close above the 90.55 neckline that eluded us on Friday, but for now the sellers are still keen to short around this vibration channel of the down trend, now coming in around 90.80; backed up by the 38.2% fibonacci retracement of the sell-off from 93.77 to 89.14 (at 90.91). If we do finally exhaust the selling interest around 90.80-91.00 it would open up a visit to the upper bound of the 1 month downtrend channel at 91.35 which if surpassed would confirm 89.14 as the new higher low in the rally from 84.82. Not much scheduled on the economic release calendar today to provide much catalyst, but the coming session will be the deal-breaker as a further rally is contingent on the 1 week uptrend support holding (currently comes in at 90.30); if we are wrong and this breaks then a resumption of the longer term downtrend should be considered. UsdChf USDCHF is arguably one of the least exciting pairs right now, essentially moving on the same drivers as EURUSD but with less bang for your buck. The pair has been subdued since Friday's suspected SNB intervention; locked in a tight range between 1.0643 post-intervention highs and 1.0550 prior resistance turned support -the latter taking on a slightly greater significance today as it coincides with the recent 1 month uptrend. We still look for further USD strength and a break above 1.0643 to target major downtrend resistance around 1.0710; really only a break below 1.0250 would threaten our view that 0.9919 is the bottom for this downtrend
Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tuesday, February 2, 2010
RBA Shocks Markets & AUD Collapses
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