Monday, July 7, 2014

Aussie fails to break support | A range bound Single Currency

While the value of the Aussie dollar against the US dollar remains elevated, and while there are many forces that could push it lower, not least the recent attempt by the Reserve Bank of Australia governor, Glenn Stevens, to talk it down, it nevertheless remains stubbornly high.

As can be seen on the daily chart above, the 200 Day Exponential Moving Average (EMA) has become a strong barrier to any movement in the downward direction. It is also true that the bounce of this level of support has not resulted in a strong rise from there either, so we will continue to monitor with an eye to a fall. This will require a catalyst, which could come in the form of the US FOMC minutes of the last meeting, which will be released tomorrow (Wednesday). If the record of the deliberations of the members of the committee give the impression that interest rate rises in the US are likely to be brought forward, then the US dollar will rise and the AUDUSD pair will fall. This will mean that the US Fed will effectively being doing the job that the Aussie central bank wants done.

Range bound Euro

We have long commented on the resilience of the Euro. Core interest rate reduction by the ECB, negative overnight bank deposit rates by the same institution, relatively high unemployment figures, damping rhetoric by various financial figures including Mario Draghi and Christine Legarde, economic problems in peripheral member states and an inflation rate that borders on deflation – none of these things seem to be able to make the Euro trend like it used to do in the olden days, which was very good for trading.

The EURUSD rate has effectively been going sideways since late last year (see chart above), so we say it is rangebound.

Now that we are in the holiday period we can hardly expect the kind of economic event that would cause a breakout, at least in the short term. As in the case of the Aussie, discussed above, we are waiting to see what the mighty US dollar does in order to possibly provide direction.

The bias for the EURUSD pair is ultimately to the downside.

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