FX Headlines: Aussie, Euro Plummet as Markets Shift to Risk Aversion

The markets appear to be in a full-on risk-averse state as the Australian Dollar, European Euro, and New Zealand Dollar were all sold off in the overnight in favor of the Japanese Yen, Swiss Franc, and U.S. Dollar amid heightening concerns over the European sovereign debt crisis.

Fundamental Headlines

• Fed Focusing on Inflation Expectations - Bloomberg

• Greece Readies Crisis-Fighting Steps - Bloomberg

• Lagarde is Front-Runner to Head IMF - Bloomberg

• As Lenders Hold Homes in Foreclosure, Sales are Hurt - CNBC

• Wall Street Braced for Sharp Drop - WSJ

AUDUSD: The Aussie-Dollar was hammered in the overnight session, dropping more than 1.35 percent at the time this report was written, as a sell-off of Asian equities spooked investors away from risky assets. As fears about the European sovereign debt crisis are seemingly reaching their boiling point, risky assets, including the Australian Dollar, European Euro, and New Zealand Dollar have been avoided in favor of safe haven currencies such as the Swiss Franc and United States Dollar. With the debt crisis spreading to the remaining PIIGS countries, with Italy having had their credit-rating outlook downgraded by Standard & Poor’s last week, the mood of the market has shifted to a full-on risk-averse state.

Taking a look at price action, a key level at 1.0500 appears to be resistance, the 50-SMA, and accordingly, the 23.6 Fibo on the September 1, 2010 to May 2, 2011 move. The pair has found this level difficult to break through over the past few weeks, multiple tests occurring but to no avail as renewed risk appetite and calls for further U.S. Dollar weakness boosting the pair. However, with fundamental pressures favoring continued risk aversion, this key level could be broken in the next few days; accordingly, the next level of resistance is the 100-SMA, at 1.0261. Momentum is building to the downside for the AUD/USD pair, with the RSI falling, now at 43. Similarly, the MACD Histogram’s bearish divergence is widening, now at -40. The shift in favor of AUD/USD pair weakness is confirmed by the Slow Stochastic oscillator issuing a sell-signal, with the %K less than the %D, at 21 and 22, respectively. And, as noted by the FXCM SSI, with the AUD/USD pair having a reading of 1.1479, it appears that speculators are shifting in favor of further AUD/USD pair weakness as well.

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com