London Session: A new paradigm for EURAUD?

  • Rate this Story
  • 0
  • 0

October 3, 2012 3:29 AM EST

Don’t forget that you can now follow Forex.com’s research team on Twitter: http://twitter.com/FOREXcom

The FX market is in “risk-on” mode today as the euro rallies and the USD and yen falter, but there was one notable exception – the AUD. The Aussie continues to linger close to the lows of the day, and the lows of the month, after the surprise rate cut from the Reserve Bank of Australia earlier today. Rates were cut by 25 basis points to 3.25%, and it left the door open to further rate cuts down the line. Its chief concern is that the mining sector may peak next year, but crucially the RBA believes the peak could be a bit lower than its original forecasts. This is a big deal – the mining sector has been a major component of Australian growth for the last 10-years, its good public finances are down to its positive terms of trade and that is down to exports from the mining sector. The problem for the RBA is that other sectors of the economy have lagged the mining sector for years, so if it slows the growth outlook for Australia gets considerably worse.

The Aussie was hit hard by the rate cut and the dovish RBA outlook. We tend to think that AUDUSD will remain range-bound for the medium-term between 1.0000 – 1.0600. The bearish crossover in the daily MACD suggests there could be more momentum to come on the downside and the Aussie is at risk of a sell off back towards 1.0180 after falling below 1.0320 key support – a cluster of daily smas. EURAUD was also given a boost after the RBA rate decision. It surged above the 1.2480 – the 200-day sma. Above here suggests a new paradigm for this pair. At the close of the London session EURAUD is on target to close around 1.2575. This daily close may trigger algo buying and other flows into this pair as this is considered a significant break of a major resistance zone, which may herald further gains towards the 1.28 zone.

EURAUD: daily chart

Source: Forex.com

Elsewhere, the economic flow has been fairly light although a story (since denied) that Spain is about to apply for aid helped risk sentiment as that would trigger the ECB’s OMT programme and cause the central bank to act as the lender of last resort (of sorts) for the currency bloc. However, Spanish PM Rajoy said that a petition for aid is not imminent, but this has failed to knock EURUSD out of its stride. The cross is testing 1.2950 – a key short term resistance zone – above which opens the way to 1.30. While we think that a request for aid from Madrid is likely to happen this month, it may not be “imminent” however, it could occur around the 20th of this month when Spain has to pay its largest bond redemption of the year so far. Without an aid request in the bag by then we could see Spanish bond yields start to rise sharply.

Tomorrow has a few juicier economic releases including services PMI data and the first of the labour market reports in the US with the notoriously volatile ADP private sector payrolls report at 1315BST/ 0815 ET.

Best Regards,

Kathleen Brooks| Research Director UK EMEA | FOREX.com

d: +44.(0).20.7429.7924 | f: +44.(0).20.7929.2010 | M: +44 (0) 7919.411.957  | e: kbrooks@forex.com| w: www.forex.com/uk

23 College Hill | 3rd Floor | London EC4R 2RT

Now you can follow us on Twitter: http://twitter.com/FOREXcom

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.

  • Rate this Story
  • 0
  • 0
For more forex information, go to www.forex.com

Join the Conversation

IBTimes TV
E-Newsletters

We value your privacy. Your email address will not be shared.