Euro continues to trade by the 1.2800 handle and now eyes a retest of the 1.2765 range lows. EU Juncker has been reiterating dovish comments that ECB has room for additional cuts. Sterling continues to show relative strength with heavy cross related EUR/GBP sales.
OVERVIEW - The FX market is little changed ( EUR/USD by daily lows) since the disclosure of the final batch of data on the week with the on the whole better than expected results highlighted by impressive GDP. The stand out currency remains Sterling with the currency showing relative strength across the board, largely driven by a shift of expectations within the Eurozone and UK. This has prompted significant cross related selling in EUR/GBP which has been a big mover on the session to take out the latest barriers below 0.8900 and expose key support by 0.8835. EU Juncker comments this morning have been driving the latest bout of Euro weakness after reiterating that the ECB has scope for additional rate cuts. US equity indices are down some 1.3% while commodities trade flat to higher with oil going nowhere and gold up about 1%. Looking to the week ahead, the market no shifts its focus to upcoming central bank decisions from the RBA (100bps expected to 3.25%), BoE (50bps expected to 1.00%) and ECB (no change expected; 2.00%).
Gbp/Jpy has been confined to an intense downtrend over the past several months with the cross rate trading to fresh life-time lows by 118.85 last Friday ahead of the latest minor bounce. However, the price action this week has been quite constructive with the market putting in a fresh higher low on each day. Additionally, it is worth noting that the lifetime lows by 118.85 have directly coincided with former trend-line-resistance (30Oct high) now turned support. Although weekly studies remain in oversold territory, the weekly RSI looks to be on the verge of a positive cross for the first time since March 2008 where we saw a 20 big figure move to the upside. Positive crosses in the RSI on the weekly chart have been few and far between over the past 20 years and each time the bullish signal has yielded a major shift in the trend, with the one exception of March 2008 where we still saw significant upside before bear trend resumption. As such we recommend looking to buy the cross next week on a break above the current weekly high.
Aud/Cad has rolled over following the latest bout of multi-day sideways trade and looks set for an eventual retest of the current trend lows by 0.7150 posted in October 2008. There is some support which comes in by 0.7630-0.7850 (previous congestion zone/24Oct low) and this area would need to be taken out to officially expose the 0.7150 critical trend lows. Expect downside pressures to persist with only a break back above 0.8225 to take the pressure off and delay bearish structure.
Aud/Chf has been trading in a bearish consolidation with the price action also showing a contraction in volatility which would suggest a major break in either direction in the near-term. There is some rising trend-line support off of the 0.6935 (27Oct lows) trend-lows which comes in by the mid-0.7300 and we would expect this level to be tested in the immediate future. A break below will open a challenge of 0.7195(29Dec low) which guards against a full retracement to 0.6935. However, a bounce by the trend-line support should open a corrective bounce back towards initial resistance at 0.7735 (28Jan high) with acceleration expected on a break.
Eur/Nzd daily chart is now starting to look a little stretched with the price trading to 2.5495 on Thursday ahead of the latest minor retreat. The cross has been rising in unrelenting fashion since last basing by 2.2495 in early January and with the market already at multi-year highs we would expect to see some form of a short to medium-term corrective pullback before considering trend resumption. Look for a break back below 2.5000 to confirm and open decent retreat back towards 2.4150 (20-Day SMA).