Dollar is sold off again today on the back of rally resumption in gold which hit new record high of 1055.5 so far. Dollar index breaks yesterday's low of 76.1 and is still heading to key support level at 75.83. Commodity currencies remain strong, with AUD/USD breaches 0.9 level to new 2009 high. The Aussie is additionally boosted by strong employment report from Australia released overnight. Euro and sterling also manages to strengthen against the greenback ahead of BoE and ECB rate decision.
On the data front, Australia job market expectedly expanded by 40.6k in September. Unemployment rate also unexpectedly dropped to 5.7% versus a rise to 6.0%. Japanese current account surplus widened to 1.23T yen in August. Eco Watchers survey also improved to 43.1 in September. Germany industrial production, US initial jobless claims and whole inventories will be released.
Aussie's strength is impressive and the rally triggered by RBA's unexpected hike is further fueled by today's job report. EUR/AUD dived through last week's low and reached as low as 1.6335 so far. The break of the trend line in daily MACD suggests that EUR/AUD is regaining downside momentum and the current down trend is still in progress for next key support level at 1.6045.
The Bank of England is expected to leave the policy rate unchanged at 0.5% and the asset purchase program at 175B pound - effectively unchanged from the decision made in August, at least before the November Inflation Report. Recent comments from King suggest the bank is considering a cut in deposit rates, the interest rate paid by BoE on commercial banks reserves held at the bank. Sterling will be vulnerable to another sharp fall, in particular against Euro, in case of some related announcement from BoE.
ECB will keep the policy rate unchanged at 1% for the 6th consecutive month. At the same time, President Trichet should state that the current rates remain 'appropriate' while inflation is 'expected to remain subdued over the policy-relevant horizon'. ECB surprised the markets by allotting only EUR 75.2b in last week's 12 month long-term refinancing operation. The amount was much lower than markets' expectation of around EUR 100 to 200bn and raised some speculations that ECB is starting to pave the way for exiting non-standard monetary policies and would possibly hike next summer. The speculation was somewhat immature at this point. Nevertheless, focus will still be on hints from Trichet on the timing of policy reversal.
Looking at the dollar index, the break of yesterday's low of 76.10 indicates that fall from 77.47 has resumed and intraday bias remains on the downside for 75.83 key support level. Decisive break there will likely send dollar through major support levels against other major currencies today and would trigger further selloff in the greenback and will target next key support level at 74.31. On the upside, though, a break above 76.64 minor resistance will now signal that fall from 77.47 has completed and turn focus back to this resistance.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.4650; (P) 1.4693; (R1) 1.4737; More
EUR/USD's break of 1.4760 indicates that rise from 1.4483 has resumed and intraday bias is back to the upside. Further rally should be seen towards 1.4842/1867 resistance zone. At this moment, we'd still expect strong resistance from there to bring reversal finally. But a strong break of 1.4867 will pave the way to 1.5 psychological resistance next. On the downside, below 1.4648 will indicate that rebound form 1.4760 has completed and will flip intraday bias back to the downside for 1.4483 support first.
In the bigger picture, rise from 1.2456 is the third leg of the medium term consolidation pattern that started at 1.2329 and has possibly completed its own five wave sequence at 1.4842 already, on bearish divergence condition in daily MACD. Break of 1.4177 support will add much credence to this case and further break of 1.3747 support will confirm. In such case, deeper decline should be seen that sends EUR/USD through 1.2329 low eventually. Meanwhile, another rise cannot be ruled out for the moment. But we'd continue to expect strong resistance at 1.4867 to bring reversal finally. However, note that strong sustained break of 1.4867 resistance will dampen this view and opens up the case for retesting 1.6039 record high in near term.