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EUR/AUD is looking to move to 1.3900

Four key markets in focus today.

EUR/AUD

I’ve been looking favourably at short EUR/AUD trades of late and continue to look for a move to 1.3900 over the coming weeks. Despite EUR/AUD trading to 1.4143, the pair failed to close below the bottom of the range at 1.4193 and has reclaimed the 1.42 handle. I would be a seller on rallies to 1.4250 given the technical and fundamental set-up at present, and traders will be keen to look out for eurozone composite inflation out at 20:00. At 1.1%, inflation levels are well below where the ECB would like them to be and a print tonight below 1% would really increase the prospect of an interest rate cut.

Spot gold

Volatility increased in gold yesterday as traders reacted to the ever-changing headlines coming out of Washington. We had seen traders position for agreement in the Senate, but now we are hearing that the Senate deal will only emerge after the House puts forward a firm proposal. I still continue to look at gold shorts, and while downtrend resistance is now at $1312, I would continue to keep stops at $1325 – just above the 38.2% retracement of the $1433 to $1251 sell-off. Price action will be thrown around again in upcoming trade on headlines from Washington, so keep your eyes peeled on Twitter and Politico.com (one of my favourite sources for the US political situation).

Bank of America (BAC)

The US financial giant reports pre-market (expectations are for 21:30) and the market expects 3Q (adjusted) EPS of 21 cents on revenue of $21.95 billion. The stock has rallied 22.6% this year. Traders will be keen to focus on one-time items, expense reductions and outlook.

Rio Tinto (RIO)

RIO rallied 0.9% into the close yesterday after solid production figures. There have been some modest upgrades to futures EPS, driven through a 25,000 upgrade to mined copper guidance to 590,000. The turnaround of the Bingham mine has been quite amazing, especially after the huge pit wall slide. Given the change in outlook to the US credit rating from Fitch this morning we could see Australian stocks under pressure, however given RIO was up over 4% in London we should see RIO outperform.

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