Tuesday, September 17, 2013

Update on the Aussie, the Buck and the Single Currency

The Australian dollar remains just above the resistance turned support level we identified prior to the release of the Reserve Bank of Australia (RBA) minutes for August. In the event, the same minutes were totally neutral for the currency, saying only that while the monetary authorities are keeping the door open for further reductions in the cash rate, which tends to reduce the strength of the Aussie, they are not going to do so in the near future.

Therefore our recent analysis stands.

As with the Aussie, the fate of the Euro or, to be more specific, the Euro / US Dollar pair (EURUSD), is now almost wholly dependent on what happens at the meeting of the US Federal Open Market Committee (FOMC) later in the week. The expectation is that the much anticipated tapering of Quantitative Easing will begin and no doubt there will be volatility in the FX and other markets initially, no matter what is announced. As the Fed is more concerned with damping this volatility we suspect that the tapering will (1) be mild and (2) be such that it can be judged to already have been priced into rates.

In the meantime the EURUSD sits close to the top of a very pronounced channel between 1.34 and 1.28 that it has carved out for itself over an extended period of time. As we have noted previously, this pair also likes to revert to the mean, represented here by the blue curve, which is the 200 day Simple Moving Average (SMA).

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