By: Alex Brandt
Highlights
AUD/USD - RBA pauses rate hikes, surprises market
EUR/CHF - Rumor of SNB intervention (again)
EUR/USD - Reverses earlier losses
USD/JPY - Risk Aversion takes hold
Eurozone News Events for Today:
07:00 GMT: German retail sales for December expected +0.9% m/m, -2.5% y/y
10:00 GMT: Euro zone PPI for December expected flat m/m, -3.0% y/y
European stocks expected to open lower.
To the surprise of the market, the RBA decided to pause rates stating that the global economy rather then the local conditions is what prompted them to hold off. The RBA more than likely fears that a slow down in China will have a ripple effect on their economy and just waiting to see what happens. Australian business confidence index did fall sharply by 11 points to 8. After the release of the RBA, the AUD/USD promptly fell 120 pips to .8800 and prompted a dollar rally. If the December 23 low established at .8733 is broker, then that could possibly open the door to .8500. Since the RBA release, all the major pairs have established a comeback with the EUR/USD reaching a recent high of 1.3936. Gold has found a bottom at 1075 and currently back above 1100. Last Fridays COT report showed that short positions on the EUR/USD have reached a 16 month high, given that information I think that we can expect to see a rally to 1.40. Reason why I believe this is that since the beginning of December, the euro has fallen over 7 percent or more than 1,000 pips against the U.S. dollar, effectively erasing almost half of the 2009 rally. Such a sharp decline in the currency will certainly attract bargain hunters. Things to look forward to this week is the US NFP report. I have noticed in the last two months, that the markets reaction to the NFP report has set the tone for the rest of the month. A positive NFP report could spur a dollar rally as it did back in December, or it could fuel the risk trade. Last week, we saw the dollar rally on good data as well as bad data so who knows what will happen!