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While confidence jumped to a two and a half year high, what really grabbed attention was the fact that business conditions finally printed a positive. AUD/USD traded to a high of 0.8769 heading into China’s industrial profits data. Should the data give the AUD a lift, I would still be looking to sell into higher levels particularly around 0.8850.
Despite pulling back, GBP/AUD is still the pair to watch as the two currencies face some diverging fundamentals. The pair continued to rally and pushed through the 1.90 barrier to print a high of 1.919, the highest level since 2009. This level saw some profit taking kick in on the pair and now it has dropped back to consolidate in the 1.90 region.
With diverging fundamentals between Australia and the UK, chances are the uptrend will remain intact and we are likely to see traders use the dips as an opportunity to accumulate, particularly below the 1.90 region.
UK Q4 GDP is expected to be up 0.7% and this is likely to set the tone for the sterling. This puts annualised GDP at 2.8% which is a fairly good position for the UK GDP and could reignite interest in the sterling.
Stability in emerging markets could see yen weakness resume
USD/JPY experienced a sharp selloff as investors sought the safety of the yen in light of the emerging markets concerns. The pair dropped to 101.80 and has since recovered to 102.70. I feel a move back above 103 would be a key trigger for a recovery in the pair and could encourage buying again.
The Japanese economic calendar is quiet right until the end of the week when we get CPI data. From the US today we have durable goods data, consumer confidence and the Case-Shiller house price index due out. The Fed’s two day meeting also commences with an increasing number of analysts calling for the Fed to taper by another $10 billion evenly split between MBS and bond purchases. Any positive data along with more tapering would be a boost for the USD and in turn for USD/JPY.