AUD struggled to gain any traction today

With Monday out the way and little fanfare, we should start seeing the big ticket event risks start to roll in.

Asia has done very little; with the Japanese equity market closed today, this won’t surprise too many, although a fund has clearly been happy to dump financial stocks in Australia, with the ASX 200 under pressure. China is flat, arresting some of the negative sentiment seen yesterday, with good earnings being seen in the insurance space, while iron ore and rebar futures have stabilised after the sizeable falls seen yesterday.

AUD/USD eyeing the 200-day moving average

The AUD looks fairly weak at present, with traders eyeing the 55- and 200-day moving averages at 0.9153 and 0.9150 respectively. The preferred way of playing AUD weakness though seems to have been against the Scandinavian currencies and the EUR, with EUR/AUD potentially looking like a good buy on a break of 1.4991 (the 38.2% retracement of the March to April sell-off) or on a pullback to 1.4910.

Comments from the ECB president and ECB member Knot put upside pressure on the single currency as they pushed back on QE expectations. To be fair, we are still some way off seeing the ECB buying private assets (such as asset-backed securities); unless we see inflation staying at 0.5% (a low probability), then we would need to see manufacturing PMI data going back into contraction or EUR/USD above 1.4500 for this extreme action to materialise.

It’s also interesting to see the elevated levels of EONIA (European money market rates) and how they are being interpreted as a sign of improvement in the eurozone. The market may suggest this raises the prospect of a cut in the ECB’s refinancing rate in the near term, but that will do little to push the EUR lower. EUR/JPY also looks good from the long side, with the pair riding the November 2013 uptrend perfectly.  German CPI is due today, with the regional data out prior to this. Naturally this will be taken as a strong pre-cursor to tomorrow’s eurozone CPI estimate, and both the German headline and EU harmonised prints are expected to increase strongly on the month.

EUR/USD is getting back towards the 1.39 area and into the key sell zone it’s held since December. Shorting is ill advised right now and a good number in today’s German print should see 1.3900 come into play, so traders will probably stay long if they are long, although I would look to cut back near the October trend around 1.4000.

Australian banks get a recommendation cut

As said, the AUD has struggled to gain any real traction today, however locally traders have seemed more interested in whether the ASX 200 could make it eight days in a row of gains. Unfortunately for the bulls the index has found good sellers and it seems the investment banks can be partially to blame for this, with Citigroup taking the cleaver to Westpac and National Australia Bank’s (NAB) rating, lowering them to a ‘neutral’ and ‘sell’ call respectively.  Morgan Stanley went slightly further and said in a research note that it sees a 70% to 80% chance that NAB will fall in the next 60 days. It feels the 1H14 earnings result on May 8 will ‘highlight revenue headwinds in business banking and an end to the era of positive cost surprise’. Perhaps this note is gaining traction given NAB is the underperformer.

We need to remember that the Australian financial space has been red hot of late and if I ran a scan of all stocks in the ASX 200, Nikkei, FTSE and S&P 500 pre-market that were trading two standard deviations from their 20-day moving average, with the MACD above the signal line, the five-day moving average above the ten-day average and where price is at a thirty-day high, three of the 35 stocks here are ASX financial names (in total I got ANZ, NAB, IAG and HZN).

Most of the rest are US-based companies  (including Apple), while in the UK I get Pearson, Sainsbury and AstraZeneca. These have been the names that have shown real buying momentum and it will be interesting to see if the momentum-focused traders will buy pullbacks in these names. Still perhaps in the short-term they could be a touch overcooked and that seems to be playing out today in Australia today.

European markets however look set for a positive open, with modest gains seen across the board. The FTSE should open just shy of 6720; a level that has acted as a ceiling on the market over the last few days. UK Q1 GDP is in focus today, with the advanced read expected to see a healthy revision to 3.2%, while we also get US, German and French consumer confidence.

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