Mid-Day Report: Commodity Currencies Soar, Dollar Softv

on December 29 2009 5:26 PM

Commodity currencies rose across the board today on improved risk appetite as crude oil extends recent rebound while global stocks are firm in thin trading. Aussie is also supported by talk of an AUD 500m fix related buy order. Dollar continues its retreat against European majors but the weakness is relatively limited so far. The greenback remains soft in early US session after release of house price and consumer confidence data. S&P Case-Shiller 20 cities house price rose for five consecutive months by 0.4% in October while yoy rate improved to -7.3%. Consumer confidence rose back to 52.9 in December.

Commodity currencies' strength is clearly felt across the board. For example. GBP/AUD once again failed 1.8320 resistance and dropped sharply since then. A break of 1.7700 support will suggest that consolidations form 1.7326 has completed and will likely bring down trend resumption through 1.7326 low to 1.7 psychological level next.

CAD/JPY's strong rally from 79.89 also indicates that recent consolidation from 90.28 has completed already and short term strength is anticipated for a retest of this cluster resistance, which coincides with 38.2% retracement of 125.52 (07 high) to 68.38 (09 low) at 90.20.

Fed proposed on Monday to set up a term deposit facility to drain funds from the markets by mopping up some of the $1T in excess reserves in the US banking system. Under the proposal, Fed would offer term deposits with interest, providing incentive for banks to park their money at the Fed. Nevertheless, Fed said that such proposal has no implications for monetary policy decisions in the near term. Dollar was lifted mildly earlier today but the support quickly faded in European session.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0396; (P) 1.0448; (R1) 1.0478; More.

USD/CAD's decline extends further as expected as reaches as low as 1.0364 in early US session. As discussed before, fall from 1.0744 is part of the whole correction pattern from 1.0851 and would extend to 100% projection of 1.0851 to 1.0416 from 1.0744 at 1.0298. Nevertheless, downside should be contained above 1.0205 support to conclude such consolidations and bring rise resumption. On the upside, above 1.0442 will turn intraday bias neutral first. But break of 1.0744 resistance is needed to confirm that rise from 1.0205 is resuming for 1.1101 resistance. Otherwise, more choppy consolidations should still be seen with risk of another fall.

In the bigger picture, a medium term bottom might be in place at 1.0205 with bullish convergence conditions in daily MACD. As noted before, fall from 1.3063 is viewed as a correction to long term rise from 0.9056. Such correction might have already completed with three waves down to 1.0205 already (1.0784, 1.1732, 1.0205). Break of 1.1101 resistance will confirm this case and target 61.8% retracement of 1.3063 to 1.0205 at 1.1971 at least. On the downside, break of 1.0205 will invalidate this view and bring down trend resumption to parity instead.

USD/CAD

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