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Trading in the US was kept to a minimum overnight, with the Dow Jones index trading in a 58 point range. Traders will continue to focus on 17,000 in this index and 2000 in the S&P 500, and it will be interesting to see if both markets can push higher given the event risk in tonight’s session. On the billing housing will be in focus with the Case-Shiller house price index and new homes sales in focus. We also get the Richmond Fed activity index, while Fed member Charles Plosser is due to speak on the economy and monetary policy at 10:05pm (AEST).
EUR/CAD looks very interesting from a technical perspective. On the daily chart we saw a multi-month head and shoulders pattern complete in early May and the pair is approaching the target of this pattern around 1.4500. We’ve also seen the May 2013 uptrend give way, while the pair has closed firmly below the 200-day moving average (now at 1.4744); a level it has been above since late 2013. A look at either the RSI’s or stochastics, however, highlights the strength of the downtrend and thus rallies in the pair could be good selling opportunities in my opinion. Fundamentals favour selling rallies as well, with the Bank of Canada seeing much stronger inflation of late. On the docket today we get German IFO survey at 6:00pm, while ECB members Nowotny and Coeure speak in European trade.
Overnight we’ve seen a bout of profit-taking creep into the oil complex, with Brent pulling back around 1% from the ASX 200 equity market close. Strong support is seen at $112.68 (the 38.2% retracement of the recent rally), so this looks like a level traders will defend as long as tensions remain in Iraq. The situation remains fluid, with the US secretary of state John Kerry now calling for a new government in Iraq, which would include all the country’s political and religious factions.
Having sold off recently from $1.08 to 54.4 cents from April to June, better days for the bulls have been seen. AGO closed above the downtrend seen during April to June on good volume, with both better buying from traders, mixed with short covering. A move to the 38.2% retracement of the aforementioned sell-off at 75 cents could be on the cards in the short-term.