It’s been a busy week for AUD traders and the data domestically has been fairly mixed, although the market has seen the net effect as positive. I judge this by looking at the swaps market, which is now pricing in 10 basis points of hikes over the next twelve months. Today at 11:30 AEDT we get the latest trade balance report (expected to see a surplus of $100 million), while we also get the January retail sales (expected to grow 0.4%). AUD/USD was buoyed overnight by some poor US data and the pair still looks good from a range-trading perceptive.
It’s all about the ECB meeting today at 23:45 AEDT, followed by Mario Draghi’s press conference at 00:30. The fact that EUR/USD didn’t rally overnight despite poor US data suggests the market is positioning for dovish action. For me, the main issues to look for would be a cut to the refinancing rate from 25 basis points to say 10 basis points. The idea here is to limit the upside in EONIA (interbank lending rates) rates. There is also a lot of talk about not sterilising the bonds it’s purchased through its Securities Market Program (SMP) during 2012. This would cap gains in the EUR as it could see its balance sheet expand by around 6%.
We also need to look out for revisions to its economic projections and any material downgrade to its inflation forecasts could be bearish. The risk/reward trade is certainly to be long as price action overnight would suggest traders have prepared themselves for a bearish set-up. I put out a short EUR/GBP and EUR/USD potential trade idea on the 14th and 17th respectively and both are fairly flat. However, while there are still short term upside risks, longer term I feel there is good downside potential.
We saw a bit of CAD strength after the Bank of Canada rate decision and tonight we get manufacturing data, which is expected to expand at a slower pace. No one wants to be overweight the USD despite this being a consensus trade for 2014 and until we get over the weather-related issues, this issue won’t change. I still like buying USD/CAD around 1.0980, which would co-inside with a key retracement level as well.
SYD is showing strong momentum right now and pullbacks should be seen as a buying opportunity. Not only is the five-day moving average pulling away from the 10-day moving average, but the fact that it closed right on the all-time high of $4.20 is interesting and runs the risk of a double-top. The MACD is firmly above zero and the signal line, further highlighting that pullbacks will be contained within the bullish trend. However, the nine-day RSI is at 87, while price is three standard deviations from the twenty-day moving average. So all-in-all the stock is overbought, but is a trend follower’s dream, so I would buy dips here, however a close today above $4.20 would be bullish.