The Euro's relative strength is paying dividends today as investors exit the Dollar following a surprise 25 basis point rate hike from the RBA. We recognize broad-based weakness in the Dollar as a result, particularly against the Aussie and Kiwi. Additionally, gold has rocketed to new all-time highs, a negative catalyst for the Dollar. The RBA is the first central bank to raise rates following the massive flood of liquidity to abate the credit crisis. Therefore, we're witnessing the first reaction to the launch of global exit-strategies. What we see so far certainly doesn't bode well for the Dollar's longer-term future. The RBA's monetary decision is heightening speculation concerning the ECB and BoE meetings on Thursday. Last week Trichet made his first somewhat Dovish comments in quite some time by defending the interest of a stronger Dollar. However, the ECB has been comparatively hawkish throughout the downturn. Hence, there's little reason to believe the central bank will act in a Dovish manner on Thursday, particularly after the RBA raised rates in confirmation that the global economy is functioning in an acceptable manner.
Despite the breakout in the AUD/USD and gold, the EUR/USD still faces multiple downtrend lines and September highs. The EU released only light econ data last week. Furthermore, the EU's previous wave of PMI data came in negatively mixed. Therefore, the EU economy is clearly facing headwinds in contrast to the RBA's enthusiasm. Hence, the EUR/USD may continue to lag behind the AUD/USD until the EU's data sends an 'all-clear', giving more room to the downside in the EUR/AUD. Meanwhile, all eyes will be on U.S. equities and the 3rd quarter earnings season which kicks off tomorrow with Alcoa. Better than expected results particularly on the revenue side as a opposed to cost-cutting would be a positive catalyst for the EUR/USD since the currency pair still shares a positive correlation with the S&P futures. Therefore, investors should keep an eye on the S&P's interaction with present resistances and September highs.
Technically speaking, the EUR/USD's recent movements have made a stronger argument for the near and medium-term uptrends. While the near-term key will be topping our three tight downtrend lines and previous September highs, the medium-term key is the psychological 1.50 level. If the EUR/USD can break past these aforementioned technical barriers near-term gains could really accelerate. As for the downside, the EUR/USD has a few more cushions to fall back on, including multiple uptrend lines along with 9/25 and October lows. That being said, the EUR/USD now has fewer technical obstacles to the topside than the downside. Additionally, breakouts in gold and the AUD/USD bode well for the EUR/USD over the near-term. Investors should keep a close eye on the EUR/USD's interaction with its topside technical barriers, particularly as the ECB's monetary policy decision approaches.
Present Price: 1.4745
Resistances: 1.4747, 1.4768, 1.44784, 1.4800, 1.4818, 1.4840
Supports: 1.4721, 1.4702, 1.4677, 1.4656, 1.4637, 1.4609
Psychological: 1.50, September Highs