Dollar recovers mildly in a quiet Asian session today but after all, it's set to end a record week of loss after following Fed's quantitative easing announcement. Kiwi is so far the biggest winner this week, closely followed by Swissy, Euro and Aussie. Indeed, NZD/USD is showing sign of bottoming after dropping over 40% from last year's high of 0.8214 to 0.4890 earlier this month. The 10% rebound from there is supported by bullish convergence condition in daily oscillators which argues that Kiwi has bottomed out in medium term. On the other hand, as disused earlier, AUD/NZD also extends recent fall from 1.2928. Note the technical developments, including breaking of the medium term channel with bearish divergence condition in daily oscillators argue that the rise from 1.0628 in AUD/NZD has completed below last year's low of 1.2966. The development is so far consistent with our view that NZD should outperform the AUD in near term and it could be the currency to bet on based on recent dollar weakness.
On the other hand, being another commodity currency, the outlook of Canadian dollar is quite different. USD/CAD is so far still bounded in medium term range and there is no change in the overall bearish outlook in the Canadian dollar. Note that despite yesterday's stronger than expected CPI release from Canada, the Loonie was indeed the weaker one against major currencies in dollar's recovery. Indeed, the Loonie remains broadly pressured today so far ahead of retail sales data from Canada. It seems that markets hesitate to jump on CAD despite USD's weakness as BoC is also expected to start quantitative easing sooner or later.
The Economic calendar today is rather light. Germany PPI dropped more than expected by -0.5% mom, 0.9% yoy in Feb. Eurozone's industrial production should have dropped -4% mom in January after declining -2.6% in the previous month as economic conditions in the 16-nation has been weak, particularly in Germany and France, since the second half of 2008. In year-ago basis, the reading probably contracted -15.5% after a -12% drop a month ago. The Eurozone will also report January's current account which showed a surplus of 1.4B euro in December following deficits of 16B euro and 6B euro in November and October respectively.
Retail sales in Canada probably rose +0.7% mom in January after declining -5.4%, the biggest decline in 15 years, in December as driven by higher gasoline sales and unit auto sales. Excluding auto, retail sales probably gained +0.3% mom following a plunge of -3.2% a month ago.
Regarding the dollar index, the break of mentioned 83.58 cluster support as well ass bearish divergence condition in daily MACD and RSI are seriously dampening the medium term bullish case. The dollar index is now heading to a key support zone with 61.8% retracement of 77.69 to 89.62 at 82.24, 38.2% retracement of 70.70 to 89.62 at 82.39, as well as trend line support at 81.12. Strong support should be seen at this zone, at least initially and bring noticeable rebound. However, decisive break of this zone will declare the whole up trend from 70.70 completed and will open up deeper fall to next key level of 77.69. The next few weeks will be important in dollar's development.
AUD/USD Daily Outlook
Daily Pivots: (S1) 0.6734; (P) 0.6838; (R1) 0.6955; More
AUD/USD retreats mildly after hitting as high as 0.6942 but after all, intraday bias remains on the upside as long as 0.6840 minor support holds. Current rise from 0.6284 is still expected to extend further to 0.7267 resistance next. On the downside, below 0.6840 will suggest that a temporary top is formed and bring pull back. But downside should be contained well above 0.6564 support and bring rally resumption.
In the bigger picture, the break of 0.6849 resistance suggests firstly that rise from 0.6248 has resumed. Secondly it also suggest that fall from 0.7267 has completed. More importantly, it indicates that whole consolidation from 0.6008 is still in progress with rise from 0.6248 as another leg. Further rally should now be seen to 0.7267 and probably even further to 38.2% retracement of 0.9849 to 0.6008 at 0.7475 before completion. Below 0.6564 is needed to indicate that recent rise has completed and turn focus back to 0.6248 support.