True to recent form, better than expected overnight economic data failed to negate investor concerns regarding European economic hardships. US existing home sales outstripped estimates, recording a 7.6 percent rise in April against the expected 4.7 percent rise. And there was no respite in the equity markets with the Dow and S&P 500 fell 1.24 and 1.29 percent respectively. Once again the Greenback was a major beneficiary of the lull in investor confidence making ground against major counterparts.
The Euro resumed its downward trajectory falling to overnight lows of 1.2350. In recent days the Euro has been able to remain above the 1.2500 as traders preempt possible intervention from the European Central Bank.
Locally, the Aussie dollar found some support earlier in the session rising to highs of 83.6 US cents before tailing off to current levels of 82.4 US cents. In the absence of economic data we expect the local unit to be directed by local equity markets. From a technical perspective 82.7 remains the pivotal to further upside with key resistance in the mid 83’s.The RSI (Relative Strength Index) remains well in oversold territory with the price action around the ‘25’ levels. Technical analysts believe an RSI reading of ‘30’ or less suggests a reversal of price action is imminent.
This week Treasury Secretary Timothy Geithner is in China to press officials to allow the Yuan to trade on a more flexible basis – and of course the threat of European economic hardships derailing the China’s economic growth. It is believed a primary factor in China’s economic success involves the competitive edge it has over competing economies due to the low Chinese Yuan. With the Yuan pegged to the weak US Dollar (6.83 US), by default this provides a competitive edge to Chinese exports, thus a negative influence on other economies with 'free floating' currencies. We can expect the depreciation of the Chinese Yuan to remain in the headlines as central banks continued to mount pressure to allow the Yuan to appreciate, thus providing an equal playing field against (export) competing economies.