After a move up to 1.0950 in early February the market has done a strong turnabout and is now eyeing the January low of 1.0492. Momentum and trend indicators suggest selling any rallies in the pair, however much will hinge on today’s Aussie employment data at 11:30 AEDT. Expectations are that we see 15,000 jobs created, with Barclays the most optimistic at 30,000 jobs, while the NAB expect no net jobs. On the other side of coin this morning’s RBNZ rate hike of 25 basis points was fully expected, however RBNZ governor Wheeler seems to have fully met the markets hawkish expectations, with the NZD rallying across the board despite the swaps market pricing in 135bp of hikes over the coming 12 months.
Gold broke out and has closed above the 2012 downtrend ($1354) and price action looks fairly bullish right now. Trend indicators suggest staying long; although stochastics on the daily chart have been showing divergence with price. Naturally there will be profit taking along the way, but as long as traders are sensing concern in China, Ukraine and a few red flags in Japan then gold will stay supported as traders continue to put a percentage of their portfolio in gold as a hedge against global risks. The fact that EUR/USD is above 1.39 is probably helping to a large degree as well.
In terms of macro concerns right now it’s hard to get away from China. However if you look at Shanghai copper we saw a monster rally from the morning open to close up 1.3%. Spot iron ore also found better buying overnight; closing at $107.40. Talk on the floor now is of cuts to China reserve ratio requirement (RRR), which in theory would give the banks more room to lend, so there is less reliance on the shadow banking sector. This should support sentiment, although some feel a cut in the RRR would be sign of weakness. At 16:30 AEDT we get a number of key China data releases; with industrial production (expected to print 0.5%), fixed asset investment (19.4%) and retail sales (13.5%).
The pair is looking a bit stretched, however its worth highlighting the bullish breakout in the pair. Moves to 0.8350 have contained the pair for the year, so the fact that price is through this resistance could suggest a strong move to the 200-day moving average at 0.8426. The break-out of the wedge suggests we could see an even more aggressive move and 0.8500 to 0.8600 can’t be ruled out.