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All eyes will be on November retail sales and building approvals at 11:30 AEDT. Retail sales will be very interesting; with expectations we will see growth of 0.4%. The RBA will be keen to look at this print and a good number should see the pair rally to around 0.8950, although a blow-out number (+1% or higher) could see 0.9100 being tested through into European trade. Of course on the flip side if we see growth of 0.2% or even a negative print then the AUD/USD could find good selling activity as traders increase bets that rate cuts will be on the cards in Q1. Keep an eye on China’s inflation reads at midday and a number above 3% could cause AUD weakness.
Chinese equities saw better gains into the afternoon yesterday and will again take centre stage, with inflation in focus. December CPI is accepted to increase 2.7% on the year, which is a reasonable pullback from the 3% pace last month. A weak number or even a number in line is positive as the PBOC have already expressed concern some months ago about inflation above 3%. There are clearly many other factors at play in China, like the raft of IPO’s due this month, while the RMB is also being used as a policy tool to curb inflows and thus curb the supply of credit.
The pair looks to be destined for a move to 1.3524 (the 61.8% retracement of the November to December rally and December 3 low) and my bias is to hold short positions, for a move even as low as 1.3300 over the coming months. At 22:00 AEDT we get German industrial production (expecting a gain of 1.5% on the month), while the bigger event will be the ECB meeting (23:45 AEDT) and Mario Draghi’s press conference shortly after. The ECB President is unlikely say much given his view that inflation is expected to increase through the year, while there has been good strength in European bond markets of late. The issue for me though is what will happen if the ECB’s inflation forecasts are incorrect. The ECB are playing a fairly dangerous game and if their forecasts prove incorrect then the eurozone could come back into the forefront of traders mindset in a similar fashion are 2011 and 2012.
TEN is over 30% above the markets consensus price target, so unless we see earnings upgrades from the broker community, they are likely to see downgrades to their recommendations. The strength behind the uptrend is strong with the media name trading over two standard deviations from its 20-day moving average, while its ten-day RSI is now at 78. With the trend in mind, pullbacks caused by profit taking could be used as buying opportunities.