There’s nothing technically I can see that suggests a decent reversal higher is on the cards, and the prospect that the RBA members due to speak this week will continue to talk down the AUD is real. This prospect of jawboning may also see traders refrain from new longs. The low point I see this week is A$0.8885; however the pair is oversold and given the trend lower; rallies should be sold. It’s going to be a huge day for the AUD with RBA assistant governor Guy Debelle due to speak at 11:15 AEDT, while we also get the RBA minutes at 11:30 AEDT and governments mid-year economic review at 12:30 AEDT.
It’s interesting to see the large outperformance of the German market of late, especially against the French market (CAC). Overnight we saw a really strong manufacturing print in Germany, while in France we saw manufacturing contract, with the index at 47.1 (a seven month low). I’ve said in a number of reports that France has to be watched through 2014 as one of the key elephants in the room, and there is increasing scepticism about French fiscal policy. The fact that the French are spending more money (relative to the size of its economy) than any other European country is worrying, given it is not generating the sorts of growth it would hope for. While the German economy is outperforming traders will prefer the German equity market, relative to that of the French market.
Sterling traders will be focusing on today’s inflation data, although the market is not expecting a change (currently 2.2%). Momentum is starting to wane and short positions are preferred, with momentum starting to break down a touch. A weak CPI print would certainly aid downside.
We know the S&P usually has a strong performance going into the last ten days of the year, but so does the ASX 200. On the daily chart we haven’t quite been given a buy signal yet, although on the hourly chart the index has seen good strength and could be ready to pull back a touch; thus providing a better level for the bulls to get long. Seasonality certainly favours long positions on the index, but momentum indicators on the daily chart are looking like we may see a slight pullback.