EUR/AUD
Who Is Piloting Germany?
Germany's Chancellor Gerhard Schroeder and Christian Democrat leader Angela Merkel announced that they have reached a breakthrough in their negotiations to make a coalition government. The government has been held up in a stalemate since the election results left both candidates splitting an equal share of the vote. Social Democratic Party chairman Franz Muentefering said in a statement that they no longer need "exploratory talks" and their "ability to form a coalition is a fact." This just leaves the sticky situation of who should be the chancellor of the first coalition between these two parties since 1969. This will not be an easy task as both groups have blatant policy differences. Some of the most polar issues between the two comes with the direction of the economy. Depending on who takes the helm, the German economy could be steered out of unemployment near record levels and growth that has been less than impressive.
Technically Speaking
A falling trend line that has contained price action the upside for the past month was broken with today's range busting day. The pair has eased significantly from the 38.2% fib that resides at 1.5920, but with little standing in way until then, the level could be easily reached. If euro bids take the pair through this level, a run would likely peter out around the 50.0% fib at 1.6019. To the downside the former support at 1.5755 formed by the low of the 20th and the further down the three-month low at 1.5600 would kill out any aussie optimism.
EUR/CAD
Making A Return Appearance
Making its way onto the market movers list for the second day in a row, EURCAD has changed pace from gaining on no data, to a fundamentally heavy day. While Canada had no scheduled economic release, the Euro took control with better than expected PMI services and retail trade numbers for the month of September and August respectively. European service industries grew at their fastest pace in over a year to 53.5, while retail sales returned to positive territory with a 0.9 percent rise. With both of these indicators fresh on monetary officials' minds going into tomorrow's ECB rate decision, there exists a good likelihood that their language could harden to make the possibility of a rate hike more near-term.
Oil Wearing Down
Further fueling bids for the pair on through the day was crude's fourth day of lower prices. Light sweet crude futures fell to $63.33 intraday on the New York Mercantile Exchange. The precious commodity has been one of the key factors in keeping the Canadian economy expansionary over a period of weak domestic demand by fueling exports that would have otherwise have been degraded by an appreciating currency.
Technically Speaking
Today's 1.3 percent move blew the pair through the trend channel that has kept movement contained for over a month. The break has stalled at 1.4210, a resistance level formed with the highs of September 26 & 28. If this level fails in Euro session momentum, the 38.2% fib of the monthly swing would act as another brake for the pair. If resistance holds, 1.4000 would be the best level for serious testing, with minor support a little higher at 1.4065.
AUD/JPY
Reserve Steady Ahead
A delayed reaction to the RBA's decision to keep the overnight lending rate unchanged at 5.50% for the seventh consecutive month, drug the pair down when the euro session offered deeper liquidity. MacFarlane and his board were presented with consumer confidence at a two-year low, falling exports and building approvals that are at their worst since 2001. This equates to weakness in both the domestic and export sectors, leaving little else to stoke growth. The only positive factors that present themselves at the moment are business investment and mining, both of which could be suspect as energy prices continue to weigh on company revenues.
Technically Speaking
Aussie bulls were not confident enough to keep the pair pushing further into seven-year highs. The initial momentum with the drop carried the pair through the 23.6% fib at 86.25, but the even 86 level has proven to be a more efficient net for the pair. The former resistance level has now shifted to a stable support. Looking farther down, the 38.2% fib at 85.57 will take the wind out of a continuation of yen strength, while a move in Aussie's favor only sees yesterday's high at 83.73 as the only level with testing.
Richard Lee is a Currency Strategist at FXCM.
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