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Aussie Bounces Back- Sterling Slumps on Data

Aussie Bounces Back- Sterling Slumps on Data

2011-05-09 15:02:00
Michael Boutros, Technical Strategist
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Daily Winners and Losers

Aussie_bounces_back-_Sterling_Slumps_on_Data_body_Picture_2.png, Aussie Bounces Back- Sterling Slumps on DataAussie_bounces_back-_Sterling_Slumps_on_Data_body_Picture_3.png, Aussie Bounces Back- Sterling Slumps on DataAussie_bounces_back-_Sterling_Slumps_on_Data_body_Picture_4.png, Aussie Bounces Back- Sterling Slumps on Data

The Australian dollar was the best performer against the greenback at the start of US trade today. The gains come on the heels of last week’s 2.5% decline that was fueled by wide spread risk-aversion and weakness in commodity prices. The aussie continues to benefit from comments from the Reserve Bank of Australia which warned of interest rate rises to contain inflation. Accordingly, interest rate expectations have moved higher with Credit Suisse now seeing a 33% chance of a 25bp move at the next central bank meeting, with 12-month expectations factoring in a 43bp hike. Strength in overall risk appetite and commodities continued to support the aussie in early North American trade with the pair trading just above interim support at 1.0720. Subsequent floors are seen at the 23.6% Fibonacci retracement taken from the advance off the March lows at the 1.07-figure, 1.0650 and 1.06. Topside targets for the pair are eyed at 1.0775 backed by the 1.08-handle the 23.6% Fibonacci extension taken from the March and April troughs at 1.0850. Traders will be eying economic data out of Australia overnight with the March trade balance figure expected to surge to 500M from a previous loss of 205M. The data is followed by Thursday’s employment figures, where a stronger than expected figure could hasten the RBA’s decision to move on rates.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.0393

20-Day SMA

1.0702

10-Day SMA

1.0807

2011 High

1.1010

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

5/10

1:30

HIGH

AUD Trade Balance (Australian Dollar) (MAR)

500M

-205M

Aussie_bounces_back-_Sterling_Slumps_on_Data_body_Picture_5.png, Aussie Bounces Back- Sterling Slumps on DataAussie_bounces_back-_Sterling_Slumps_on_Data_body_Picture_6.png, Aussie Bounces Back- Sterling Slumps on Data

The sterling broke below the 38.2% Fibonacci extension taken from the March and April troughs at 1.6350 in pre-market trade today. The pound will remain on the defensive ahead of Wednesday’s UK inflation report as recent economic data continues to suggest sluggish growth for the second half of 2011. Weaker than expected data from the Confederation of British Industry today weighed on the pound as it cut its UK growth forecasts, while Halifax showed house prices fell 1.4% in April, missing calls for a gain of 0.1%. The data has traders pushing back rate-hike expectations with overnight swaps now factoring just a 7% chance for a rake hike at the next MPC meeting. Our contrarian Speculative Sentiment Index continues to show traders upping their net long positions on the sterling, with approximately 2 traders long the pound against the dollar for every 1 traders who is short. Daily relative strength also suggests further weakness with the index dropping to 42.64. Targets for the GBP/USD pair are eyed at the 23.6% Fib extension at 1.6280, backed by 1.6250 and the April 18th lows at 1.6170. Interim resistance stands at the 50% extension, followed by 1.6450, 1.6470, and the 165-figure.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

5/9

23:01

Medium

RICS House Price Balance (APR)

-23.0%

-23.0%

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.6291

20-Day SMA

1.6446

10-Day SMA

1.6520

2011 High

1.6748

Written by Michael Boutros, Currency Analyst for DailyFX.com

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

You can also follow Michael on Twitter @MBForex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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