FOREXSPORT - CURRENCY WATCH

AUD/USD – Short term trend UP, Long term trend DOWN

The AUD/USD has strengthened further as the market appetite for risk returns with the US economy posting better than expected employment numbers last Friday night surprising the market and the Federal Reserve. The US unemployment rate fell to 8.3% whilst new jobs came in double of expectations.

The doom and gloom of the European debt crisis has taken a back seat to a stronger US economic recovery with stock markets, commodities and risk currencies back in demand.

The US economy is seen as the global engine of the world economy and whilst the US dollar remains weak, we expect the US export led recovery to continue and eventually filter through to the global economy.

Greece is still in negotiations with its international creditors and its political leaders are in discussions over further austerity measures to ensure an additional EUR130billion rescue package is approved by Troika.

If the Greeks fail to agree on further austerity measures to ensure the rescue package is passed, then default is inevitable. The Greeks must agree as the alternative is a Greek default which will negatively impact Portgual, Italy and Spain and will see the EUR sold with nervousness returning to the world markets. The impact to the European financial system and the global financial system if default becomes a reality for these countries would see disastrous consequences.

In Australia today, we await the release of retail sales and ANZ job ads for further confirmation of the strength of the Australian economy. Financial sector jobs in Australia are under threat as banks reduce costs to keep profits up. The RBA meets tomorrow and another rate cut can be expected if today’s data releases disappoint.

We still look to China for the short and long term direction of the AUD/USD watching Chinese economic data releases for signs of the strength of the Chinese economy. A strong US economy does not mean a strong Chinese economy as the two have been at odds over China’s Yuan peg to the USD which does not reflect China’s economy.  Manufacturing in the US in on the increase with the weak USD greatly assisting sales of US made goods. A downturn in China negatively impacts Australia’s mining sector and the long term economic outlook.

Our view is that a weakening Australian mining sector and lower commodity prices are expected to weigh on the AUD/USD over the long term but in the short term we expect the return of risk buying by the markets to support the AUD in the absence of any negative European news.

The AUD/USD is currently trading at 1.0750 and a test of 1.0850 is now expected whilst support at 1.0650 holds. A break above 1.0850 opens up the topside for another test of the recent high at 1.1080.

A break through 1.0650 will result in a further move down 1.0380 and we feel a break through 1.0650 is more likely over the week.

EUR/AUD – Short term trend DOWN, Long term trend DOWN

The EUR/AUD has failed to recover and has traded down to 1.2165. The market awaits the outcome of the Greek meetings to see whether a default can be averted. At the time of writing, the Eurozone ministers have cancelled their meeting tonight after Greek unions rejected proposed wage cuts.

If the Greeks default, the focus turns to Italy, Portugal and Spain and the impact to the European financial system.

The EUR/AUD is currently trading at 1.2195 and we expect 1.2080 to hold with 1.2480 providing resistance. 

GBP/AUD –Short term trend DOWN, Long-term trend DOWN

The GBP/AUD has traded to 27 years lows at 1.4650. Despite improvement in the UK services PMI data, the AUD continues to strengthen against the GBP. Currently trading at 1.4675, support is found at 1.4500 with resistance at 1.4900.

AUD/JPY – Short term trend UP, Long term trend UP

The AUD/JPY has held support at 80.20 and is currently trading at 82.50. The Bank of Japan is expected to intervene and sell the Yen with its strength impacting on Japanese exports. The market will remain cautious ahead of any intervention and we expect the AUD/JPY to hold above 80.20.

A range of 81.00 – 83.80 is expected over the week.

AUD/NZD – Short term trend DOWN, Long term trend DOWN

The AUD/NZD has remained in a narrow trading range as both currencies are bought on risk.

Currently trading at 1.2910, we expect further range trading over the week between 1.2800 and 1.3030.

EUR/CHF – Short term trend DOWN, Long term trend UP

The EUR/CHF has flirted with the major support level at 1.2000, (SNB intervention level) trading to a low of 1.2030. Currently trading at 1.2070, we feel that a further deterioration in the Europe debt crisis will see the market take on the SNB and test 1.2000. We expect a range of 1.1930 – 1.2120 over the week.

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