EURUSD
The Euro continued to stabilize above the psychologically important 1.30 level today. With little actual news to establish direction, price spent the London and U.S. sessions in a tight range of just 50 pips. Strength in U.S. stocks lent the Euro support repeatedly throughout the U.S. session. The Euro initially traded lower on positive U.S. purchasing manager's data but saw no follow through from traders willing to press it below 1.3015 in the face of continued U.S. stock market strength. This pattern of strong U.S. stock indices propping up the Euro is not a new one and has been particularly pronounced over the last several weeks. In fact the sharp sell-offs we've seen in the Euro over this same time period were accompanied by corrective sell offs in U.S. stocks -- see Figure 1. As long as this correlation continues to hold Euro bears will have to sit through upside corrections every time the bull on Wall Street shows its horns.
Figure 1.
Despite near-term stability for the European currency volume patterns continue to support the current down-trend. Should the Euro see consecutive closes above today's high on an hourly basis however the case for a short covering run back toward 1.3200 still needs to be considered. And despite talk from a WSJ article that says otherwise, we see Mario Draghi still favoring a strong Euro over a weak one. His primary concern is still protecting European banks first, keeping exporter's needs on hold, for now. Conversely, and for that same reason, we anticipate hedging pressure to create resistance above. We like selling rallies in Euro and our near-term downside target should we see a daily close below 1.30 is 1.26.
AUDUSD
Hard to say anything definitive about the Aussie ahead of tonight's GDP release. We need to wait and see if that release confirms yesterday's uptick in retail sales and the recent relatively upbeat tone of the Reserve Bank of Australia. We do see room up above in Aussie given the big bounce off of 1.01. Technically the market did not reach 1.01, bottoming at 1.0115 on Monday - see Figure 2-- which tells us there is support - demand - at those levels. We are still in the "sell the rally camp" regarding the Aussie, and understand that the RBA's recent supportive tone can change in a hurry if the current decent economic data turns out to be a blip in an overall downtrend. From a technical perspective we see room all the way up to 1.0350, though it seems more likely bears, including us, would make a stand just below 1.03 should price get that far and momentum start to wane. We are definitely looking forward to continued good swing trading and shorter-term opportunities.
Figure 2.
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