General

EUR selloff inspires USD strength

September 4, 2015 8:52 am

Global Markets: The value of the EUR diminished in an aggressive fashion on Thursday as a dovish sounding Draghi invited concerns about the single currency. The Euro selling pressure weakened overall risk sentiment which translated to a re-established appetite for the USD. This domino effect rippled through the commodity markets which resulted in a swift decline in Gold.

It felt like no matter what Draghi had to say in the conference on Thursday, the EUR was on a mission to decline. Europe has been exposed to an extended period of pressure from the slowdown in China and a decline in the prices of commodities and as a whole, and the speech yesterday reminded investors about these issues.

Three key points from the conference were absorbed by market participants. Firstly, the ceiling for sovereign bond ownership had been raised to 33% from the initial 25%, to promote more operational flexibility by the ECB. Secondly, the growth forecast was shaved with the initial 1.5% trimmed to 1.4% for 2015. Finally, the key inflation targets were cut more than growth. CPI for 2015 was expected to rise to 0.1% from the initial 0.3% forecast. With such gloomy projections, it was reiterated that QE may be extended in the future if necessary.

A lingering effect resides within the markets from the losses experience by the EUR on Thursday. If further QE becomes a reality, the value of the EUR will most likely weaken further. An interesting observation was the re-established appetite for the USD which caused the US Dollar index to appreciate. With ADP Non-Farm for the States printing below expectations on Wednesday, this USD strength may be short-lived if the NFP today fails to meet expectations. Overall sentiment for the USD remains solid and an NFP release above 200k today should keep USD bulls above water.

With the Shanghai Composite Index closed, due to the World War II 70th anniversary commemorations, some focus has been temporarily taken away from China. Focus may be re-established on Monday, when the Shanghai Composite Index reopens for trading.

AUDUSD

Weakness from the global decline in commodities can be reflected in the falling AUD. The AUDUSD is technically bearish on the daily timeframe. Previous support at 0.7050 may become resistance, which should aid a decline to the next relevant support at 0.6850. A move back above 0.7200 invalidates this daily bearish outlook.

AUDNZD

The AUDNZD is currently in a range within a weak downward channel. Prices trade below the 20 SMA and the MACD trades to the downside. A breakdown below 1.0900 may open a path to the next relevant support at 1.0700.

AUDCAD

The AUDCAD is technical bearish. Prices have hit a relevant support at 0.9200; a breach below this level may open a path to the next relevant support at 0.8900. The candlesticks reside below the daily 20 SMA and the MACD has crossed to the downside. If a move back above 0.9400 occurs, then this daily bearish outlook becomes invalidated.

AUDJPY

The risk-off environment has provided the JPY with consistent strength. The AUDJPY is technically bearish and prices have breached a relevant support at 85.00. Previous support may become resistance which should open a path to the 82.00 level which was a monthly support back in November 2012. A move back above 85.00 invalidates this daily bearish outlook.