During the past week EUR/USD has made a move down towards $1.3510, but managed to stabilize there and recover to $1.3570. There is further resistance at $1.3660 (200-day MA) and $1.3700/40.
Bottom may be at $1.3400 (55-month MA, 200-week MA). The reason for euro to fall lower would appear if the ECB does QE, but we think that the central bank will take a time out to see how the economy’s reacting.
In Europe we had stronger than expected industrial production, but it’s not enough to change the ECB’s position on easing. Next week the most important release will be German ZEW Economic Sentiment – the indicator has been declining for 5 months in a row.
Data from America remains mixed. US retail sales growth slowed last month. It means that consumer spending is weak especially considering the improvement in the labor market (solid NFP above 200K). Focus will be on the Fed’s meeting and press conference on Wednesday, June 18. On the one hand, the Fed will keep avoiding the rate hike talk and stick to the intention to leave monetary policy unchanged for a long time. But on the other hand, it will continue slowly but surely tapering QE. Still, this is what the market expects and we don’t think that the FOMC will be a great market mover this time.
It’s good to trade euro in crosses: EUR/AUD, EUR/NZD as Australian and New Zealand’s dollars offer higher yields that contrasts with the negative deposit rates in the euro area. There’s room for more declines after some correction.
AUD/USD is on demand
In line with our base scenario AUD/USD has managed to break above resistance line going from October 2013 high through April and May highs. On Thursday the prices closed above May high ($0.9411). It’s always pleasant to see some clear patterns on the chart and now may be exactly such case – I mean this flag-triangle like formation.
Daily moving averages have turned up, and support has shifted up from $0.9200 to $0.9315 and $0.9350. The target lies at $0.9460, $0.9500 (76.4% Fibo). The prices entered weekly Ichimoku Cloud. A correction and profit taking on the increase in geopolitical risk may be used as a chance to join the bulls.
The main factors helping AUD to strengthen is the market’s demand for it as it offers high yields. One-month implied volatility for Australia’s dollar slid its lowest level since 1996. As a result, investors are drawn to Aussie and kiwi as carry trade currencies and ignore this year’s 32% drop in prices for iron ore, the Australia’s biggest export.
Chinese figures released this week we quite OK. As for Australian data, the labor market data came mixed with steady unemployment below 6% and an increase in full-time jobs, but a fall in part-time jobs which made the total jobs number contract. The Reserve Bank of Australia wants lower national currency, but with consumer prices rising 2.9% in Q1 from a year earlier, the most since 2011, it’s difficult for the RBA to put on the brakes and send AUD down. The RBA minutes are due on Tuesday, June 17.