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Foreign Exchange

FX research roundup: AUD could be back as the best bet with EUR unpredictable

It wasn’t a boring week: Ireland’s bailout, WikiLeaks (now with a US bank in its sights), snow-bound Europe, CFTC data now net Euro short, Trichet...

It wasn’t a boring week: Ireland’s bailout, WikiLeaks (now with a US bank in its sights), snow-bound Europe, CFTC data now net Euro short, Trichet affirming the continuation of unlimited bank liquidity, US implying support for an enlarged EFSF, Beige book, Australian retail sales disappoint, eurozone retail sales surprise, Russia ‘won’ the World cup; and there’s still US non-farm payrolls to come.


The CFTC weekly positioning data showed that the market was net short of euros for the first time since September. And the soothsayers are again pointing down: Lloyds is the most adventurous we’ve seen, predicting 1.0900, while Bank of America Merrill Lynch is cautiously aiming for 1.2500. But in truth, predicting EUR/USD is a game of chance right now – not only are the relativities of growth unknowable, so are the policy responses to both economic and market crises. A case in point was yesterday: Trichet disappointed the market by not explicitly endorsing peripheral debt purchase (EUR/USD to 1.3060), then reality dawned and the ECB was reported to be buying sovereign doo-doo in clips of €100 million (EUR/USD through 1.3250). It’s just a crapshoot. And Deutsche appears to feel the same way but expresses it differently. The bank is sidelined in EUR/USD: “When the market gets into crisis mode, it can take a life of its own, and price action in the near-term is likely to be dominated by positioning and sentiment-led swings.”


Simon Derrick at Bank of New York Mellon summarises what a lot of people have been thinking: “Both the USD and EUR are ending the year looking significantly more tarnished than they did at the start of the year. What’s left to buy?” It’s a good question. Derrick’s answer is that although of late both the AUD and ZAR have lost their lustre, now might be a good time to step back into long positions in gold-supported currencies. Both currencies selling off “was also what happened in May in the immediate aftermath of the Greek crisis. However, by late May both were stabilising and getting ready to enter their primary up-trends of the year.”


George Davis at RBC also appears to favour some turn-around in the AUD: “Struggling to sustain the resolution of a head and shoulders pattern below 0.9663. A close above 0.9759 would expose 0.9954 as valuations attempt to resolve oversold readings.”

It looks like that 0.9954 level is now on the cards while AUD/USD flirts with 0.9800. The chaps at Citi seem to imply that some of the AUD move is EUR/AUD related, but point out there is close resistance at the 55-day moving average of 0.9806.

Why 55-day? I have no idea.

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